Aligning Incentives for Accelerated Heifer Growth in Custom Heifer Growing Contracts

Nicole J. Olynk and Christopher Wolf ()
Authors registered in the RePEc Author Service: Nicole Olynk Widmar

No 6077, 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: Dairy managers today are faced with the decision to either raise their own replacements on the dairy farm or send heifers to a custom heifer grower. The largest potential challenge of contracting out the heifer raising enterprise revolves around the potential for a moral hazard problem because of hidden action on the part of the custom heifer grower. A principal-agent framework was used to elicit contract terms which provide incentives for the custom heifer grower to perform accelerated growth without heifers becoming over-conditioned. In order to provide incentives to custom growers, heifers returned to the dairy farm should be compared in performance to other heifers of similar age. We solve for the price paid per pound of gain, price paid for inch of wither height above the average heifer on the operation, deduction per unit of body condition score over or under ideal body condition score, and percent of the value of milk production above the average milk production by herd peers. Such comparisons are similar to tournament contracts, such as those used in raising poultry or swine.

Keywords: Livestock; Production/Industries (search for similar items in EconPapers)
Pages: 19
Date: 2008
New Economics Papers: this item is included in nep-cta
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea08:6077

DOI: 10.22004/ag.econ.6077

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