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

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

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

  • Vivek Pandey & Aleksan Shanoyan & H Christopher Peterson & R. Brent Ross, 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, vol. 3(8), pages 532-542.
    • Handle: RePEc:asi:ajosrd:v:3:y:2013:i:8:p:532-542:id:874
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    2. Xue Qu & Daizo Kojima & Laping Wu & Mitsuyoshi Ando, 2022. "Do Farming Scale and Mechanization Affect Moral Hazard in Rice Harvest Outsourcing Service in China?," Agriculture, MDPI, vol. 12(8), pages 1-12, August.

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