Quality Measurement and Contract Design: Lessons from the North American Sugarbeet Industry

This paper examines contracts used in the North American sugarbeet industry. Though quite similar in many respects, the contracts we study vary across processing firms in the set of quality measures used to condition contract payments to growers. This is somewhat surprising, given the homogeneous nature of the processors' finished product (refined sugar). It seems unlikely that processors differ significantly in how they value the various attributes of a sugarbeet, and such a difference is perhaps the most natural reason to expect variation in the structure of quality incentives across processors. Previous attempts to explain the observed variation in sugarbeet contracts have focused on differences in organizational form across firms. In this paper, we provide an alternative explanation that relies on variation across production regions in growers' ability to control the relevant measures of sugarbeet quality.     

Information Sharing and Oligopoly in Agricultural Markets: The Role of the Cooperative Bargaining Association

We study incentives for information sharing among agricultural intermediaries in imperfectly competitive markets for farm output. Information sharing always increases expected grower and total surplus, but may reduce expected intermediary profits. Even when expected profits increase with information sharing, intermediary firms face a prisoner's dilemma where it is privately rational to withhold information, given that other firms report truthfully. This equilibrium can be avoided if firms' information reports are verifiable, and if firms commit to an ex ante contract that enforces participation in information sharing. We show how agricultural bargaining legislation can implement such a contract with the bargained farm price representing a sufficient statistic of all information held by intermediary firms.     

Standards and the regulation of environmental risk

We study regulatory design for a pollution-generating firm who is better informed than the regulator regarding pollution mitigation possibilities, and who chooses an unobservable action when employing a particular mitigation plan. We distinguish among performance, process, and design standards, and study the relative merit of each type of regulatory instrument. Relative to previous work on standards design, we emphasize technology and process verification. An optimal performance standard is relatively strict when regulator and firm preferences are congruent, but the regulator may prefer no performance standard at all if verification costs are sufficiently high. A process standard unambiguously increases expected surplus (relative to no regulation) in some environments, and otherwise improves welfare only when it is unlikely to generate a “bad” technology choice by the firm. A design standard can improve welfare if the regulator is sufficiently well informed about the technological possibilities for pollution control, but only when the firm’s private benefits from technology choice are sufficiently small.     

Analysis of an Emerging Market: Can Methyl Iodide Substitute for Methyl Bromide?

Recent amendments to the Montreal Protocol specify a 100% reduction in methyl bromide consumption in all developed countries by the year 2005 (except for 'critical uses'). In this paper we consider one possible chemical substitute to methyl bromide, methyl iodide, that until recently has received little attention as a potential alternative. We examine the viability of methyl iodide using information from studies of the economic benefits of methyl bromide to California agricultural producers and of methyl iodide effectiveness in pre-plant fumigation experiments, and from an assessment of the world market for iodine.     

Grader Bias in Cattle Markets? Evidence from Iowa

Live cattle are increasingly priced as an explicit function of U.S. Department of Agriculture yield and quality grades. Human graders visually inspect each slaughtered carcass and call grades in a matter of seconds as the carcass passes on a moving trolley. We examine whether there is systematic bias in grade calls using a sample of loads delivered to three different midwestern packing plants during 2000–2002. Overall, results indicate that indeed there is a bias, and that grading standards vary significantly across packing plants. Results also are consistent with a behavioral model where graders are more accurate when grading relatively low-quality carcasses.