Adapting Contract Theory to Fit Contract Farming
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This article discusses the current state of contract theory and its usefulness
for conceptualizing issues related to agricultural contracting. I will discuss
the limitations of existing theory for applied work, and what methodological
improvements are needed to enhance the usefulness of the theory to agricultural
economists. One pervasive problem is that the canonical economic literature
on contracts is rather fragmented and the various methodological strands are
narrow in their focus. As such, there is a need for agricultural economists to
engage in methodological research to develop applied contracting models that
can capture higher order features of real world agricultural contracts while
delivering generalizable comparative statics predictions. The need for such
research is obvious as contracting continues to expand along the entire modern
food marketing channel. In the latter part of this article, I develop a simple
model to illustrate how classic methodological approaches can be combined with
recent developments in contract and game theory to construct applied theory
models that are useful for capturing some important features of agricultural
contracts.