@article{Monteiro:321179,
      recid = {321179},
      author = {Monteiro, Diogo Souza},
      title = {Contract breaching in agricultural markets: An experiment  on double moral hazard},
      address = {2022-04},
      number = {2450-2022-1092},
      pages = {34},
      year = {2022},
      abstract = {Contract farming is increasingly used to coordinate  transactions between farmers and buyers downstream in food  chains. However, the potential gains of contracts are often  undermined by contract breaches from both buyers and  sellers. In this paper we develop a simple buyer-seller  contract model where we introduce the option of buyers to  choose whether or not to offer a binding price to sellers.  We assume agents are rational and self-interested, and that  in single or double moral hazard settings there should not  be differences in profits between buyers and sellers. We  test our model in a laboratory experiment where we vary  whether: (i) only the seller can renege on the initial  agreement (single moral hazard), (ii) both the buyer and  the seller can renege (double moral hazard), (iii) buyers  can choose whether they are bound by their initial contract  offer or not when the contract is determined. In contrast  to theoretical predictions, we find that the single moral  hazard setting is Pareto superior to the double moral  hazard one, as it increases total profits and reduces  income inequality. In the third treatment, we find that  buyers opt to retain the right to renege on the initial  contract offer and use it as a substitute for a lower price  offer.},
      url = {http://ageconsearch.umn.edu/record/321179},
      doi = {https://doi.org/10.22004/ag.econ.321179},
}