Estimation of an Efficient Tomato Contract

Posted: 6 Mar 2011

See all articles by Ethan A. Ligon

Ethan A. Ligon

University of California, Berkeley; Giannini Foundation

Date Written: March 4, 2011

Abstract

An agency model of contracts used in California's processing‐tomato industry is estimated in three stages. We first estimate growers' stochastic production possibilities, and then, for a given vector of preference parameters, compute an optimal compensation schedule. Finally, we compare computed compensations with actual compensations and choose preference parameters to minimise distance between the two. Assuming perfect competition and risk neutrality for processors, we obtain an estimate of 0.08 for growers' measure of constant absolute risk aversion, and find that growers who face higher‐powered incentives produce higher levels of soluble solids, at a cost that is 1.8 per cent greater than otherwise. Efficiency losses from information constraints are 1 per cent of mean compensation, whereas existing quality measurement improves efficiency by 1.08 per cent.

Suggested Citation

Ligon, Ethan A., Estimation of an Efficient Tomato Contract (March 4, 2011). Available at SSRN: https://ssrn.com/abstract=1776655

Ethan A. Ligon (Contact Author)

University of California, Berkeley ( email )

207 Giannini Hall #3310
Berkeley, CA 94720-3310
United States

Giannini Foundation

UC Davis
Davis, CA 95616
United States

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