Risk Preferences, Transaction Costs, and Choice of Marketing Contracts: Evidence from a Choice Experiment with Fresh Vegetable Producers

Vassalos, Michael; Hu, Wuyang; Woods, Timothy A.; Schieffer, Jack; Dillon, Carl R.

doi:10.1002/agr.21450

Cited by 21 publications

(20 citation statements)

References 38 publications

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“…A few recent studies have used choice experiments to assess marketing preferences of smallholder farmers in developing countries (Blandon et al, 2009b;Schipmann and Qaim, 2011;Gelaw et al, 2016;Vassalos et al, 2016). Traditional channel farmers…”

Section: Choice Experimental Approachmentioning

confidence: 99%

Farmers’ preferences for supermarket contracts in Kenya

Ochieng

Veettil²,

Qaim

2017

Food Policy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWith the modernization of global agri-food systems, the role of contract farming is increasing. This also involves smallholder farmers in developing countries. While previous studies have looked at economic impacts of contract schemes on smallholder farmers, little is known about farmers' preferences for contracting in general, and for specific contract design attributes in particular. Better understanding farmers' preferences and constraints is important to make smallholder contract schemes more viable and beneficial. This article builds on a choice experiment to analyze farmers' preferences and preference heterogeneity for contracts in Kenya. In the study region, supermarkets use contracts to source for fresh vegetables directly from preferred suppliers. However, farmer dropout rates are high. Mixed logit models are estimated to examine farmers' attitudes towards critical contract design attributes. Having to deliver their harvest to urban supermarkets is costly; hence farmers require a significant output price markup. Farmers also dislike delayed payments that are commonplace in contract schemes. The most problematic contract attribute is related to unpredictable product rejection rates, which substantially add to farmers' risk. Designing contracts with lower transaction costs, more transparent quality grading, and fairer risk-sharing clauses could enhance smallholder participation in supermarket procurement channels.

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Section: Choice Experimental Approachmentioning

confidence: 99%

Farmers’ preferences for supermarket contracts in Kenya

Ochieng

Veettil²,

Qaim

2017

Food Policy

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“…This research stream offers potentially valuable insights concerning the importance of the risk preferences of the contracting parties in determining perceptions of transaction costs and choice of contracting arrangements. Results to date support the importance of transaction costs in such decisions (Allen and Lueck, 1995;Hernández-Espallardo et al, 2013;Hudson and Lusk, 2004;Vassalos et al, 2016) while findings concerning the relative impact of variable risk preferences on governance choices are mixed. For example, TCE's assumption of risk neutrality is supported in several studies reporting that risk preferences do not significantly impact contracting arrangements (e.g.…”

Section: Trust and Tcementioning

confidence: 98%

“…These studies have tested the implications of theoretical risk assumptions for contractual arrangements in U.S. and European agriculture contexts including hog farming, sharecropping and tomato growing (see, e.g. Ackerberg and Botticini, 2002;Lueck, 1995, 1999;Franken et al, 2009;Hernández-Espallardo et al, 2013;Hudson and Lusk, 2004;Vassalos et al, 2016). This research stream offers potentially valuable insights concerning the importance of the risk preferences of the contracting parties in determining perceptions of transaction costs and choice of contracting arrangements.…”

Section: Trust and Tcementioning

confidence: 99%

Integrating variable risk preferences, trust, and transaction cost economics – 25 years on: reflections in memory of Oliver Williamson

McMackin

Chiles

Lam³

2021

Journal of Institutional Economics

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In this essay, we honour the memory of Oliver Williamson by reflecting on Chiles and McMackin's 1996 Academy of Management Review article ‘Integrating variable risk preferences, trust, and transaction cost economics’. The article, which built on Williamson's work in transaction cost economics (TCE), went on to attract attention not only from the authors’ home discipline of management and organisation studies, but also from other business disciplines, the professions and the social sciences. After revisiting the article's origins and core arguments, we turn to selectively (re)view TCE's development since 1996 through the lens of this article, focusing on trust, risk and subjective costs. We cover conceptual and empirical developments in each of these areas and reflect on how our review contributes to previous debates concerning trade-offs implicit in relaxing TCE's behavioural assumptions. We conclude by reflecting on key points of learning from our review and possible implications for future research.

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“…With special reference to fruits and vegetables sector, growers face production and price risks associated with farming, and an increased uncertainty due to the characteristics of their products (Cook, 2011;Ligon, 2001, Vassalos et al, 2015, principally they are perishable and subject to severe price fluctuations. A possible option to mitigate these risks is the adoption of forward contracts.…”

Section: Vertical Coordination In Agri-food Supply Chain: Basic Conceptsmentioning

confidence: 99%

Vertical Relationships and Food Supply Chain Coordination: The Case of Processing Tomato Sector in Algeria

Benmehaia¹,

Brabez²

2018

New Medit

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This paper analyzes the vertical relationship between growers and processors in the Algerian tomato processing industry. We use extensive data on production contract outcomes for processing tomato growers (including 3,740 coordinated contracts) to examine the performance of grower-processor vertical contracts. The results indicate that the tomato grower-processor vertical relationship undergoes some deficiencies resulted in social welfare losses and lower level in contractual performance. From the side of processors, the industry has an oligopsonic structure (with CR4: 57%). From the side of tomato growers, the results indicate a relatively higher contractual default (with 53% in average). These findings suggest that public policy should pay more attention for the performances levels of the used vertical coordination mechanism in order to provide more incentive instruments and by leveraging vertical contract for tomato growers' benefit.

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Risk Preferences, Transaction Costs, and Choice of Marketing Contracts: Evidence from a Choice Experiment with Fresh Vegetable Producers

Cited by 21 publications

References 38 publications

Farmers’ preferences for supermarket contracts in Kenya

Farmers’ preferences for supermarket contracts in Kenya

Integrating variable risk preferences, trust, and transaction cost economics – 25 years on: reflections in memory of Oliver Williamson

Vertical Relationships and Food Supply Chain Coordination: The Case of Processing Tomato Sector in Algeria

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