Balancing Grower Protection Against Agency Concerns: An Economic Analysis of Contract Termination Damages

This study examines legislation that would grant growers termination damages if their contracts are terminated. Our model suggests that, with no contracting frictions, damages would not reduce ex ante efficiency as processors can contract around damages through contract restructuring. Growers would earn less under continuation but would be protected if terminated, although overall expected profits would be unaffected. However, when contracting friction exist, then efficiency losses can occur as processors would be constrained in restructuring contractual incentives to deal with moral hazard. Growers' expected profits would increase while processors' profit would decrease.


Subject(s):
Issue Date:
2008
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/42461
Published in:
Journal of Agricultural and Resource Economics, Volume 33, Number 2
Page range:
154-168
Total Pages:
15




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

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