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Principal-Agent Governance Mechanism in an Emerging Biofuels Supply Chain in USA

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  • Pandey, Vivek
  • Shanoyan, Aleksan
  • Peterson, H. Christopher
  • Ross, R. Brent

Abstract

This article analyzes the incentives and compensation problems faced by cellulosic ethanol producer and logging firms and the consequent impact on the organization of the wood based cellulosic ethanol industry in the US. The success of this relationship is central to setting up the biofuel industry in Michigan and in the US at large. The study utilizes the theoretical framework of institutional economics and uses case methodology to discuss potential problems arising from information asymmetry. Theoretical results indicate that the specification contract under the principal-agent framework is of limited utility due to’ metering’ problem when the principal contracts with multiple agents for the supply of feedstock. Alternative arrangements including joint ventures have the potential to provide close to first best solutions.

Suggested Citation

  • Pandey, Vivek & Shanoyan, Aleksan & Peterson, H. Christopher & Ross, R. Brent, 2013. "Principal-Agent Governance Mechanism in an Emerging Biofuels Supply Chain in USA," Asian Journal of Agriculture and Rural Development, Asian Economic and Social Society (AESS), vol. 3(08), pages 1-11, August.
    • Handle: RePEc:ags:ajosrd:198232
    DOI: 10.22004/ag.econ.198232
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    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Khanna, Madhu, 2008. "Cellulosic Biofuels: Are They Economically Viable and Environmentally Sustainable?," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 23(3), pages 1-6.
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    Cited by:

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    2. Martinez-Valencia, Lina & Garcia-Perez, Manuel & Wolcott, Michael P., 2021. "Supply chain configuration of sustainable aviation fuel: Review, challenges, and pathways for including environmental and social benefits," Renewable and Sustainable Energy Reviews, Elsevier, vol. 152(C).

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