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Abstract

A theoretical model is developed to explain the economics of determining price slides for feeder cattle. The contract is viewed as a dynamic game with continuous strategies where buyer and seller are the players. We determine the value of the slide that assures subgame perfect equilibrium when the seller gives an unbiased estimate of cattle weight. An empirical model using Superior Livestock Auction (SLA) data shows that price slides used are smaller than those needed to cause the producer to give unbiased estimates of weight. Consistent with the model's predictions, producers slightly underestimate cattle weights.

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