Adapting Contract Theory to Fit Contract Farming

16 Pages Posted: 15 Apr 2020

See all articles by Steven Y. Wu

Steven Y. Wu

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

Date Written: October 2014

Abstract

This article discusses the current state of contract theory and its usefulness for conceptualizing issues related to agricultural contracting. The paper will explore the limitations of existing theory for applied work, and what methodological improvements are needed to enhance the usefulness of the theory to agricultural economists. One pervasive problem is that the economic literature on contracts is rather fragmented and the various methodological strands are narrow in their focus. As such, agricultural economists should engage in methodological research to develop applied contracting models that can capture higher‐order features of real‐world agricultural contracts while delivering generalizable comparative statics predictions because contracting continues to expand along the entire modern food marketing channel. In the latter part of this article, a simple model is developed to illustrate how classic methodological approaches can be combined with recent developments in contract and game theory to construct applied theory models that are useful for capturing some important features of agricultural contracts.

Keywords: Agricultural contracts, contract theory, food supply chain, relational contracts

Suggested Citation

Wu, Steven Y., Adapting Contract Theory to Fit Contract Farming (October 2014). American Journal of Agricultural Economics, Vol. 96, Issue 5, pp. 1241-1256, 2014, Available at SSRN: https://ssrn.com/abstract=3574220 or http://dx.doi.org/10.1093/ajae/aau065

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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