A Study on the U.S. Long-Term Hog Procurement Contracts
2009
Jang, J.I. (University of Missouri-Columbia, Columbia, USA), E-mail: jjnnd@mizzou.edu | Lee, I.Y. (Hanshin University, Osan, Republic of Korea), E-mail: ilee@hs.ac.kr
The research analyzes U.S. hog procurement contract to explore factors influencing the choice of contracts over spot markets in a circumstance where product differentiation comes into play. Using existing theories of contracts, it proposes three hypotheses: incentive distortion; imperfection in price signals; and temporal specificity. Based on the analysis of a unique data set of hog procurement contracts, we found preliminary evidence supporting the hypotheses. In particular, it is confirmed that vertical coordination for difficult-to-measure quality attributes and inter temporal consistency of hog weights strongly favors long-term contracts over spot markets. We expect these findings enhance our understandings of alternative vertical coordination modes as well as the behavioral nature of quality attributes.
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