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Balancing Grower Protection Against Agency Concerns: An Economic Analysis of Contract Termination Damages

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  • Fan, Maoyong
  • Lee, Myoungki
  • Wu, Steven Y.

Abstract

Using a dynamic principal-agent model, we analyze termination damages that protect growers from contract termination or non-renewal. We show that government imposed breach damages can be distortionary and may not necessarily lead to increased grower welfare.

Suggested Citation

  • Fan, Maoyong & Lee, Myoungki & Wu, Steven Y., 2004. "Balancing Grower Protection Against Agency Concerns: An Economic Analysis of Contract Termination Damages," 2004 Annual meeting, August 1-4, Denver, CO 20392, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea04:20392
    DOI: 10.22004/ag.econ.20392
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    References listed on IDEAS

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    1. Erkal, Nisvan, 2007. "Buyer-supplier interaction, asset specificity, and product choice," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 988-1010, October.
    2. Bebchuk, Lucian Ayre & Shavell, Steven, 1991. "Information and the Scope of Liability for Breach of Contract: The Rule of Hadley vs. Baxendale," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(2), pages 284-312, Fall.
    3. S. Andrew Starbird, 2005. "Moral Hazard, Inspection Policy, and Food Safety," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 15-27.
    4. James Andreoni & William Harbaugh & Lise Vesterlund, 2003. "The Carrot or the Stick: Rewards, Punishments, and Cooperation," American Economic Review, American Economic Association, vol. 93(3), pages 893-902, June.
    5. MacDonald, James M. & Perry, Janet E. & Ahearn, Mary Clare & Banker, David E. & Chambers, William & Dimitri, Carolyn & Key, Nigel D. & Nelson, Kenneth E. & Southard, Leland W., 2004. "Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities," Agricultural Economic Reports 34013, United States Department of Agriculture, Economic Research Service.
    6. Lewin-Solomons, S., 2000. "Asset Specificity and Hold-up in Franchising and Grower Contracts: A Theoretical Rationale for Government Regulation?," Cambridge Working Papers in Economics 0013, Faculty of Economics, University of Cambridge.
    7. Theofanis Tsoulouhas & Tomislav Vukina, 2001. "Regulating Broiler Contracts: Tournaments Versus Fixed Performance Standards," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 1062-1073.
    8. Armando Levy & Tomislav Vukina, 2004. "The League Composition Effect in Tournaments with Heterogeneous Players: An Empirical Analysis of Broiler Contracts," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 353-378, April.
    9. Roe, Brian E. & Wu, Steven Y., 2003. "The Welfare Effects Of Banning Tournaments When Commitment Is Impossible: Some Results From The Broiler Sector," 2003 Annual meeting, July 27-30, Montreal, Canada 22151, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    Cited by:

    1. Wu, Steven Y., 2013. "Adapting Contract Theory to Fit Contract Farming," 2014 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA 161894, Agricultural and Applied Economics Association.
    2. Cordero Salas, Paula, 2016. "Relational Contracts and Product Quality: The Effect of Bargaining Power on Efficiency and Distribution," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), pages 1-19.
    3. Salas, Paula Cordero, 2012. "Does Contract Enforcement Limit the Distribution of Bargaining Power? An Experimental Study," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124503, Agricultural and Applied Economics Association.
    4. Steven Y. Wu, 2014. "Adapting Contract Theory to Fit Contract Farming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1241-1256.

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    Keywords

    Crop Production/Industries;

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