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Incentives, Information Systems, and Competition
Author(s) -
Bogetoft Peter,
Olesen Henrik Ballebye
Publication year - 2003
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 - 10.1111/1467-8276.00115
Subject(s) - incentive , adverse selection , moral hazard , competition (biology) , microeconomics , business , industrial organization , quality (philosophy) , economics , ecology , philosophy , epistemology , biology
We investigate how different competitive regimes affect the ability to provide incentives based on noisy information systems. The set‐up involves multiple producers and processors in the presence of moral hazard and adverse selection. Reduced competition may facilitate incentive provision by allowing more high‐powered incentives. This may rationalize both vertical and horizontal integration as seen in many agricultural markets with uncertain quality grading. On the other hand, if trading terms are settled before the information is observed, a noisy information system may suffice to give proper incentives. This may rationalize the use of long‐term conditional price contracts in the trading of many agricultural products.