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Mitigating Contractual Hazards: Short-term vs. Long-term Contracting in Animal Agriculture

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  • Dubois, Pierre
  • Vukina, Tomislav

Abstract

The production contracts between integrator firms (principals) and independent growers (agents) in most agricultural settings are governed by short term contracts. Recently, some firms converted their short-term into long-term contracts. This change in contract duration represents a natural experiment that enables us to isolate the effect of the change in contract length from other changes in contract parameters on agents' incentives to perform. Using contract settlement data for the production of hatching eggs we show that switching from a short-term to a long-term contract alleviated the hold-up problem and resulted in increased investments in productivity enhancing technologies and practices which improved performance across all productivity margins.

Suggested Citation

  • Dubois, Pierre & Vukina, Tomislav, 2009. "Mitigating Contractual Hazards: Short-term vs. Long-term Contracting in Animal Agriculture," 2009 Conference, August 16-22, 2009, Beijing, China 50046, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae09:50046
    DOI: 10.22004/ag.econ.50046
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    References listed on IDEAS

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