000009954 001__ 9954
000009954 005__ 20180122193843.0
000009954 037__ $$a381-2016-22276
000009954 041__ $$aen
000009954 245__ $$aContracts, Quality, and Default: Endogenizing a Buyer's Rejection Rate
000009954 260__ $$c2007
000009954 269__ $$a2007
000009954 300__ $$a25
000009954 336__ $$aConference Paper/ Presentation
000009954 390__ $$aReplaced with revised version of paper 08/06/07.
000009954 446__ $$aEnglish
000009954 490__ $$aSelected Paper 174545
000009954 500__ $$aReplaced with revised version of paper 08/06/07.
000009954 520__ $$aThis paper represents a first attempt to examine within an analytical framework the issue of endogenous rejection of contracted production by buyers, a phenomenon of considerable concern in developing countries, as rapid industrialization of the agricultural sector increases the incidence of contract production in these countries.   We study whether produce buyers might use a rejection rate that is not only dependent on product quality, but also on the market conditions they face or their capacity.  Further, we explore whether rejection might be used to influence the price farmers receive in both the contract and spot markets.  The spot market often does not provide incentives for high-quality production due to pooling and resulting adverse selection problems.  We show, however, that the spot market remains important in a setting with contracting because it determines the contract price needed to meet producersÂ’ participation constraints.  However, stochastic production of high-quality products is problematic for buyers in this setting because the buyer cannot determine ex ante the amount of contracts needed to maximize profits ex post.  We show that the advent of contracting for high-quality production actually makes the spot market an increasingly inappropriate outlet for acquisition of high-quality product because contract producers sell exclusively low-quality production in the spot market, reducing the share of high-quality production available there, relative to an equilibrium with only the spot market.
000009954 650__ $$aConsumer/Household Economics
000009954 650__ $$aDemand and Price Analysis
000009954 700__ $$aThome, Karen E.
000009954 700__ $$aSexton, Richard J.
000009954 8564_ $$s138209$$uhttp://ageconsearch.umn.edu/record/9954/files/sp07th01.pdf
000009954 887__ $$ahttp://purl.umn.edu/9954
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  Previous issue date: 2007
000009954 982__ $$gAmerican Agricultural Economics Association>2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon
000009954 980__ $$a381