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Product Quality and Grower Reputation: Dynamic Contracts With Adverse Selection

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  • Wang, Yanguo
  • Jaenicke, Edward C.

Abstract

We investigate the design of a two-period contract between an agricultural processor and growers whose quality-ability types are not observable to the processor. After characterizing the optimal contracts and establishing conditions for a separating equilibrium, we investigate how a payment based on first-period reputation may induce more first-period effort. We show that this reputation-based payment can improve both the processor's and the grower's welfare, resulting in a dominant equilibrium.

Suggested Citation

  • Wang, Yanguo & Jaenicke, Edward C., 2005. "Product Quality and Grower Reputation: Dynamic Contracts With Adverse Selection," 2005 Annual meeting, July 24-27, Providence, RI 19543, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea05:19543
    DOI: 10.22004/ag.econ.19543
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    References listed on IDEAS

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    1. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
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