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Impact of Third‐party Contract Enforcement in Agricultural Markets—A Field Experiment in Vietnam
Author(s) -
Saenger Christoph,
Torero Maximo,
Qaim Matin
Publication year - 2014
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aau021
Subject(s) - productivity , business , enforcement , investment (military) , contract farming , quality (philosophy) , product (mathematics) , agricultural economics , information asymmetry , agriculture , agricultural science , economics , production (economics) , finance , economic growth , microeconomics , mathematics , political science , law , ecology , philosophy , geometry , environmental science , epistemology , politics , biology
We study the effect of alleviating the information asymmetry regarding product quality that is widespread in contracts between agricultural producers and buyers in developing countries. Opportunistic buyers may underreport quality levels to farmers to reduce the price that they have to pay. In response, farmers may curb investment, thereby negatively affecting farm productivity. In an experiment, we entitle randomly selected smallholder dairy farmers in Vietnam, who are contracted by a large company, to independently verify milk testing results. Results indicate that treatment farmers use 12% more inputs, and they also increase their output significantly. Some wider research and policy implications are discussed.