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Double Sided Moral Hazard and Share Contracts in agriculture

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  • Fernandez-Olmos, Marta
  • Rosell-Martinez, Jorge
  • Espitia-Escuer, Manuel Antonio

Abstract

This paper develops a double-sided moral hazard model of share contract in agriculture, with imperfect quality measurement by the agent and the principal, who contribute to the final good quality in terms of production effort and marketing effort respectively. Using this model, we analyse the implications of the share contract for quantity and quality, often ignored in previous analysis. With the help of a simulation exercise, we prove that the outcome-conditioned share generally weakens the agent´s incentive to make effort in quality input. This finding could explain the contractual evidence in some differentiated markets such as the wine market, where bottle-price conditioned contracts are rarely used.

Suggested Citation

  • Fernandez-Olmos, Marta & Rosell-Martinez, Jorge & Espitia-Escuer, Manuel Antonio, 2008. "Double Sided Moral Hazard and Share Contracts in agriculture," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43863, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae08:43863
    DOI: 10.22004/ag.econ.43863
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    References listed on IDEAS

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