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Incentives and Moral Hazard: Plot Level Productivity of Factory-Operated and Outgrower-Operated Sugarcane Production in Ethiopia

Mengistu A. Wedimu, Arne Henningsen and Tomasz G. Czekaj

No 211900, 2015 Conference, August 9-14, 2015, Milan, Italy from International Association of Agricultural Economists

Abstract: We investigate the rather unique contractual arrangement between one of the largest sugar factories in Ethiopia and its adjacent outgrower associations. The only significant difference between the sugarcane production on the factory-operated plantation and on the outgrower-operated plots is the remuneration system and thus, the incentives to the workers. We compare the productivity of these two production models based on a new cross-sectional plot-level data set. As sugarcane production depends on various exogenous factors that are measured as categorical variables (e.g. soil type, cane variety, etc.), we estimate the production function by a nonparametric kernel regression method that takes into account both continuous and categorical explanatory variables without assuming a functional form. Our results show that outgrower-operated plots have−ceteris paribus−a significantly higher productivity than factory-operated plots, which can be explained by outgrowers having stronger incentives to put more effort in their work than the employees of the sugar factory.

Keywords: Crop Production/Industries; International Development (search for similar items in EconPapers)
Pages: 45
Date: 2015
New Economics Papers: this item is included in nep-eff and nep-hrm
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Related works:
Journal Article: Incentives and moral hazard: plot level productivity of factory-operated and outgrower-operated sugarcane production in Ethiopia (2017) Downloads
Working Paper: Incentives and Moral Hazard: Plot Level Productivity of Factory-Operated and Outgrower-Operated Sugarcane Production in Ethiopia (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iaae15:211900

DOI: 10.22004/ag.econ.211900

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