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| Lee, Myoungki; Wu, Steven Y.. |
| We study the economic impact of proposed legislation requiring processors to pay termination damages to growers when contractual relationships are prematurely severed. In doing so, we derive the optimal relational contract in the presence of asset specificity, ex post market power on the part of processors, and the presence of an exogenous shock that might destroy gains from trade from contracting. The optimal contract then provides a credible framework for assessing how government intervention might affect optimizing behavior of contracting parties. We conclude that termination damages would not be distortionary and would not undermine processors' ability to design effective relational incentives. However, the distribution of surplus would be affected. |
| Tipo: Conference Paper or Presentation |
Palavras-chave: Agricultural and Food Policy. |
| Ano: 2005 |
URL: http://purl.umn.edu/19184 |
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| Lee, Myoungki; Wu, Steven Y.; Fan, Maoyong. |
| This study examines legislation that would grant growers termination damages if their contracts are terminated. Our model suggests that, with no contracting frictions, damages would not reduce ex ante efficiency as processors can contract around damages through contract restructuring. Growers would earn less under continuation but would be protected if terminated, although overall expected profits would be unaffected. However, when contracting friction exist, then efficiency losses can occur as processors would be constrained in restructuring contractual incentives to deal with moral hazard. Growers' expected profits would increase while processors' profit would decrease. |
| Tipo: Journal Article |
Palavras-chave: Contract law; Contract regulation; Damages; Incentives; Principal-agent; Farm Management. |
| Ano: 2008 |
URL: http://purl.umn.edu/42461 |
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