The Value of Price- and Quantity-Fixing Contracts for Piglets in Finland

Posted: 5 Mar 2001

See all articles by K.S. Pietola

K.S. Pietola

Wageningen UR - Agricultural Economics Research Institute (LEI)

Hong Wang

Washington State University - School of Economic Sciences

Abstract

This paper estimates the value for price- and quantity-fixing contracts to trade weaned piglets from farrowing farms to finishing farms. These values are estimated using quasi option values, driven up by volatile returns to investment in hog production units. The results suggest that hog producers have an incentive to choose vertically coordinated or integrated production systems when investing in hog production. The value of the price- and quantity-fixing contract was estimated as 7.3 per cent of the investment outlay in farrowing units and 2.7 per cent of the investment outlay in finishing units. The corresponding value of the option to suspend production in finishing units was estimated at 1.7 per cent.

Keywords: vertical coordination, contracts, quasi option values, hog industry

Suggested Citation

Pietola, K.S. and Wang, Hong Holly, The Value of Price- and Quantity-Fixing Contracts for Piglets in Finland. Available at SSRN: https://ssrn.com/abstract=256555

K.S. Pietola

Wageningen UR - Agricultural Economics Research Institute (LEI)

Burgemeester Patijnlaan 19
The Hague, 2502 LS
Netherlands

Hong Holly Wang (Contact Author)

Washington State University - School of Economic Sciences ( email )

Hulbert 111G
Pullman, WA 99164
United States
509-335-8521 (Phone)

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