CONTRACT INCENTIVES AND EXCESSIVE NITROGEN USE IN AGRICULTURE

This study examines incentives for input use under tournament contracts. We analyze implications of contract design for nitrate-based environmental externalities generated by agricultural producers. Outcomes are compared from contracts awarded by tournament to those from fixed-payment contracts. Our findings show contract insecurity can distort input use. The model developed in this analysis is applied to a region of the U.S. where tournament-based production is prevalent and groundwater contamination is a problem. We find contract insecurity increases nitrogen use by about 12%, resulting in a 17% increase in nitrate leaching. Implications for contract modification to reduce environmental externalities while maintaining contract incentives are discussed.


Issue Date:
2000-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/30902
Published in:
Journal of Agricultural and Resource Economics, Volume 25, Number 2
Page range:
468-484
Total Pages:
17




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

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