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Making it personal: breach and private ordering in a contract farming experiment

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  • Sebastian Kunte
  • Meike Wollni
  • Claudia Keser

Abstract

In a laboratory experiment, we study behaviour in a contract farming game without third-party enforcement but with an external spot market as outside option. We examine if and how relational contracts and personal communication support private-order enforcement. We find mixed evidence for our private ordering hypothesis. While relational contracting significantly reduces contract breach in general, the possibility for ‘direct bargaining communication’ has no additional positive effect. Both parties benefit from a well-functioning relation in the long run, yet most subjects are not willing to sacrifice short-term gains. If reputational mechanisms are absent, premiums are offered (but not paid).

Suggested Citation

  • Sebastian Kunte & Meike Wollni & Claudia Keser, 2017. "Making it personal: breach and private ordering in a contract farming experiment," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 44(1), pages 121-148.
    • Handle: RePEc:oup:erevae:v:44:y:2017:i:1:p:121-148.
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    2. Bellemare, Marc F. & Bloem, Jeffrey R., 2018. "Does contract farming improve welfare? A review," World Development, Elsevier, vol. 112(C), pages 259-271.
    3. Hohler, J. & Muller, J. & Kuhl, R., 2018. "Explaining market behavior of farmers - Findings from an experimental beauty contest game with different contexts," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277121, International Association of Agricultural Economists.
    4. Fischer, Sabine & Wollni, Meike, 2018. "The role of farmers’ trust, risk and time preferences for contract choices: Experimental evidence from the Ghanaian pineapple sector," Food Policy, Elsevier, vol. 81(C), pages 67-81.
    5. Monteiro, Diogo Souza, 2022. "Contract breaching in agricultural markets: An experiment on double moral hazard," 96th Annual Conference, April 4-6, 2022, K U Leuven, Belgium 321179, Agricultural Economics Society - AES.

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    More about this item

    Keywords

    contract farming; private-order enforcement; relational contracts; communication; economic experiments;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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