Optimal Incentives Under Moral Hazard and Heterogeneous Agents: Evidence from Production Contracts Data

In this paper we develop an analytical framework for the estimation of the structural model parameters of an incentive contract under moral hazard with heterogeneous agents. Using micro level data on swine production contract settlements, we confirm that contract farmers are heterogenous with respect to their risk aversion and that this heterogeneity affects the principal's allocation of production inputs across farmers. Assuming that contracts are optimal, we obtain estimates of a lower and an upper bound of agents' reservation utilities. We show that farmers with higher risk aversion have lower outside opportunities and hence lower reservation utilities.


Issue Date:
2005
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/24645
Total Pages:
16
JEL Codes:
D82; L24; Q12; K32; L51
Series Statement:
Contributed Paper




 Record created 2017-04-01, last modified 2017-08-24

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