Agricultural Markets As Relative Performance Evaluation

Brent Hueth () and Ethan Ligon

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Relative performance schemes such as tournaments are commonly used in markets for a variety of livestock and processing commodities, while explicit versions of these schemes are rarely used in markets for fresh fruits and vegetables and specialty grains. We show how contracts for these latter commodities do in fact provide relative performance incentives, albeit indirectly, via a payment mechanism that depends on market prices. In such contracts, compensation is often an increasing function of revenue; this implements a relative performance scheme by making each grower's payment an increasing function of his own output but a decreasing function of other's output.

Date: 2001-05-01
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Published in American Journal of Agricultural Economics, May 2001, vol. 83 no. 2, pp. 318-320

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