On the Efficacy of Contractual Provisions for Processing Tomatoes
2003
Hueth, Brent | Ligon, Ethan
This paper uses extensive data on production outcomes for processing tomato growers in California to examine the efficacy of explicit incentives observed in grower-processor contracts. Our data include all deliveries of tomatoes to some 51 processors over a period of 7 years in which at least 65 unique types of contracts are employed. Results indicate that incentives account for a significant proportion of observed variation in production outcomes, and that complementarities across different sorts of "incentive instruments" play a prominent role in contract design. Although explicit incentives explain a substantial portion of the variation in production outcomes relative to that which could be explained by incentives (as captured by processor/year fixed effects), there remains considerable variation which might be accounted for by unobserved or implicit incentives. Finally, we control for a quite exhaustive set of factors other than incentive provisions that might conceivably affect expected production outcomes, yet are still left with a substantial amount of unexplained variation.
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