Optimal Incentives under Moral Hazard and Heterogeneous Agents: Evidence from Production Contracts Data

Pierre Dubois and Tomislav Vukina

No 25568, 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia from International Association of Agricultural Economists

Abstract: The objective of this paper is to develop an analytical framework for estimation of the parameters of a structural model of an incentive contract under moral hazard, taking into account agents heterogeneity in preferences. We show that allowing the principal to strategically distribute the production inputs across heterogenous agents as part of the contract design, the principal is able to change what appears to be a uniform contract into individualized contracts tailored to fit agents' preferences or characteristics. Using micro level data on swine production contract settlements, we find that contracting farmers are heterogenous with respect to their risk aversion and that this heterogeneity affects the principal's allocation of production inputs across farmers. Relying on the identifying assumption that contracts are optimal, we obtain the estimates of a lower and an upper bound of agents' reservation utilities. We show that farmers with higher risk aversion have lower outside opportunities because of lower reservation utilities.

Keywords: Production; Economics (search for similar items in EconPapers)
Pages: 37
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/25568/files/cp060270.pdf (application/pdf)

Related works:
Journal Article: Optimal incentives under moral hazard and heterogeneous agents: Evidence from production contracts data (2009)
Working Paper: Optimal Incentives under Moral Hazard and Heterogeneous Agents: Evidence from Production Contracts Data (2008)
Working Paper: Optimal Incentives under Moral Hazard and Heterogeneous Agents: Evidence from Production Contracts Data (2006)
Working Paper: Optimal Incentives Under Moral Hazard and Heterogeneous Agents: Evidence from Production Contracts Data (2005)
Working Paper: Optimal incentives under moral hazard and heterogeneous agents: evidence from production contracts data (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:iaae06:25568

DOI: 10.22004/ag.econ.25568

Access Statistics for this paper

More papers in 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia from International Association of Agricultural Economists Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().