Producer Protection Legislation and Termination Damages in the Presence of Contracting Frictions

38 Pages Posted: 15 Sep 2009

See all articles by Steven Y. Wu

Steven Y. Wu

Purdue University - College of Agriculture; IZA Institute of Labor Economics

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Abstract

This study models producer protection legislation that would grant growers the right to claim damages (PPLD) if their contracts are prematurely terminated. In the absence of contracting frictions that prevent contractors from redesigning contracts to accommodate exogenous policy changes, PPLD would not be distortionary or redistributive. If contracting frictions exist, then PPLD would have efficiency and redistributive effects, though the direction and magnitude depends on the size of PPL damages vis-à-vis expected damages under existing contract law. This study clarifies the conditions under which PPLD would decrease efficiency and protect growers.

Keywords: producer protection legislation, agricultural policy, moral hazard, contracts, contract law

JEL Classification: Q12, Q18, K12, D82, D86

Suggested Citation

Wu, Steven Y., Producer Protection Legislation and Termination Damages in the Presence of Contracting Frictions. IZA Discussion Paper No. 4373, Available at SSRN: https://ssrn.com/abstract=1472565 or http://dx.doi.org/10.2139/ssrn.1472565

Steven Y. Wu (Contact Author)

Purdue University - College of Agriculture ( email )

United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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