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Right arrow L14 - Transactional Relationships; Contracts and Reputation; Networks
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© 1995 Oxford University Press and the Foundation for the European Review of Agricultural Economics

research-article

Primary and secondary producers: Economic implications of contracts in the food marketing chain*

HANS ANDERSSON

Swedish University of Agricultural Sciences

Hans Andersson, Department of Economics, Swedish University of Agricultural Sciences, Box 7013, S- 750 07 Uppsala, Sweden

Summary

In this paper a principal-agent model is used to examine the optimal contracting problem of a large processor situated in a geographically limited area. The model is an extension of Holthausen‘s result (1979). The model design considers various degrees of price risk exposure for raw material and processed products, risk preferences and technology parameters. The optimal contract is endogenously determined and shown to be a function of technology parameters, factor prices, risk measures in the spot markets and risk preferences of the parties involved.

Keywords: optimal contract, principal-agent theory, processing contract, price risk, price policy


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