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Adapting Contract Theory to Fit Contract Farming
Author(s) -
Wu Steven Y.
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/aau065
Subject(s) - construct (python library) , contract theory , order (exchange) , agriculture , comparative statics , economics , work (physics) , simple (philosophy) , focus (optics) , state (computer science) , microeconomics , management science , computer science , industrial organization , finance , epistemology , engineering , mechanical engineering , ecology , philosophy , physics , optics , biology , programming language , algorithm
This article discusses the current state of contract theory and its usefulness for conceptualizing issues related to agricultural contracting. The paper will explore the limitations of existing theory for applied work, and what methodological improvements are needed to enhance the usefulness of the theory to agricultural economists. One pervasive problem is that the economic literature on contracts is rather fragmented and the various methodological strands are narrow in their focus. As such, agricultural economists should engage in methodological research to develop applied contracting models that can capture higher‐order features of real‐world agricultural contracts while delivering generalizable comparative statics predictions because contracting continues to expand along the entire modern food marketing channel. In the latter part of this article, a simple model is developed to illustrate how classic methodological approaches can be combined with recent developments in contract and game theory to construct applied theory models that are useful for capturing some important features of agricultural contracts.