Food Quality: The Design of Incentive Contracts

Posted: 16 Sep 2011

See all articles by Rachael E. Goodhue

Rachael E. Goodhue

University of California, Davis - Department of Agricultural and Resource Economics

Date Written: October 2011

Abstract

Quality considerations are increasingly important drivers of production and coordination choices for players in the agrofood chain. Incentive contracts between farmers and processors, shippers, and other buyers are an increasingly popular means of coordinating to improve food quality. This review examines the economic literature regarding incentive contracts and the provision of food quality, with a focus on empirical analyses. Studies of specific value chains find that a desire for higher quality or specific quality attributes increases the likelihood that a contract, rather than the spot market, is used. Consistent with economic theory, studies regarding the selection of contract provisions find that financial incentives are used when an attribute is easily observable at the time of sale, whereas requirements for specific inputs and actions tend to be used when an attribute is not easily observable.

Suggested Citation

Goodhue, Rachael E., Food Quality: The Design of Incentive Contracts (October 2011). Annual Review of Resource Economics, Vol. 3, Issue 1, pp. 119-140, 2011, Available at SSRN: https://ssrn.com/abstract=1928341 or http://dx.doi.org/10.1146/annurev-resource-040709-135037

Rachael E. Goodhue (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States
916-754-7812 (Phone)
530-752-5614 (Fax)

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