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Risk pooling cooperative games in contract farming
Author(s) -
Shi Zhanwen,
Cao Erbao
Publication year - 2021
Publication title -
canadian journal of agricultural economics/revue canadienne d'agroeconomie
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 37
eISSN - 1744-7976
pISSN - 0008-3976
DOI - 10.1111/cjag.12263
Subject(s) - incentive , pooling , microeconomics , production (economics) , agriculture , economics , context (archaeology) , population , contract farming , environmental economics , public economics , computer science , artificial intelligence , ecology , paleontology , demography , sociology , biology
Contract farming can be an effective measure to deal with agricultural production risks. This study provides a two‐stage stochastic programming model to analyze farmers’ cooperation in the context of contract farming under uncertainty. It provides a fair cost allocation policy for a coalition of farmers using a stochastic linear duality approach. A fair cost allocation implies that no subset of farmers has an incentive to leave the coalition. Thus, a fair allocation policy ensures the stability of a coalition. Meanwhile, the risk pooling game is shown to have population monotonicity, which means that, every time a coalition adds a new member, each farmer within the coalition will incur a smaller cost. Hence, the population monotonicity gives an incentive for coalition expansion. Our results not only provide a simple way to design fair cost allocation policies for collaboration strategies in contract farming, but also play an important role in the sustainable development of farmers’ coalitions.