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Contract Production of Green Peas

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  • Olesen, Henrik Ballebye

Abstract

This paper analyzes a contract between farmers and a large company in the Danish food industry, Danisco Foods. Production of green peas requires a very accurate coordination, which is obtained through centralized decision-making. The contract is based on a tournament system providing risk sharing between the farmers. General problems from the contract theory such as hold up, moral hazard, risk sharing and screening are analyzed. The paper illustrates the tradeoffs between these problems in design of contracts. By negotiating the contract through a pea-growers association, the farmers gain some bargaining power. Thus the farmers can ensure that Danisco Foods uses only one contract for all farmers. This paper analyzes the consequences of the farmers' strategy. Throughout the analysis several modifications of the contract is suggested in order to improve the incentives.

Suggested Citation

  • Olesen, Henrik Ballebye, 2001. "Contract Production of Green Peas," Unit of Economics Working Papers 24200, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.
    • Handle: RePEc:ags:rvaewp:24200
    DOI: 10.22004/ag.econ.24200
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    File URL: https://ageconsearch.umn.edu/record/24200/files/ew010004.pdf
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    Cited by:

    1. Olesen, Henrik Ballebye & Olsen, Rene H., 2001. "Discrimination and Strategic Group Division in Tournaments," Unit of Economics Working Papers 24183, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.

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    Keywords

    Agribusiness;

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