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A Principal-Agent Model for Investigating Traceability Systems Incentives on Food Safety

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  • Resende Filho, Moises de Andrade

Abstract

This article investigates the effects of contingent payments and a traceability system's expected traceback rate of success on the food safety effort exerted by raw material suppliers. This sheds light on when contingent payments and the reliability of a traceability system are substitutes and complements to each other in terms of inducing raw material suppliers to exert higher food safety effort. In addition, the effect of higher penalties and costs of food safety crisis on the effort to be induced by buyers (principal) on suppliers (agents) is investigated under a symmetric information setting. Finally, the asymmetric information setting is formalized as a principal-agent model and left to be explored in a future work. Some numerical exercises are carried out to illustrate main findings. It has been found that more reliable traceability systems might induce higher food safety efforts by suppliers. However, this same effect could be accomplished either with higher payments whenever no food safety crisis occurs or with lower payments whenever a food safety crisis occur both assuming the traceability system works. Finally, it is shown that without a traceability system in place no incentive scheme could be implemented.

Suggested Citation

  • Resende Filho, Moises de Andrade, 2007. "A Principal-Agent Model for Investigating Traceability Systems Incentives on Food Safety," 105th Seminar, March 8-10, 2007, Bologna, Italy 7897, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaa105:7897
    DOI: 10.22004/ag.econ.7897
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    Cited by:

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    2. Zhou, Jiehong & Jin, Yu & Liang, Qiao, 2021. "Quality inspection, information disclosure and wholesale vendors’ traceability adoption," 2021 Annual Meeting, August 1-3, Austin, Texas 313943, Agricultural and Applied Economics Association.
    3. Gachukia, Martin Kang’ethe, 2015. "Moderating effect of traceability on value chain governance of credence goods: a perspective of the New Institutional Economics framework," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 117(2), pages 1-9, August.

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