TIME SERIES ANALYSIS OF A PRINCIPAL-AGENT MODEL TO ASSESS RISK SHIFTING AND BARGAINING POWER IN COMMODITY MARKETING CHANNELS

We apply the classic agency model to investigate risk shifting in an agricultural marketing channel, using time series analysis. We show that if the principal is risk-neutral and the agent is risk-averse instead of risk-neutral, then a linear contract can still be optimal if the fixed payment is negative. Empirical results for the Dutch potato marketing channel indicate that while fixed payments to farmers (agents) have decreased over time, even to negative levels, the incentive intensity has approximately doubled, and the risk premium the farmers ask for has remained considerable. These results imply that risk has shifted from wholesalers, processors, and retailers to farmers; we argue that this shift could be the consequence of chain reversal, i.e., the transformation of the traditional supply chain into a demand-oriented chain.


Issue Date:
2003
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/22046
Total Pages:
33
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2017-04-26

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