1932

Abstract

We appraise the current status of relational contract theory, along with associated empirical studies, with the goal of providing an orientation to the field to economists who may not have expertise in contract theory. We begin with a theoretical discussion focusing mainly on intuition and the usefulness of the theory for conceptualizing applied agricultural contracting problems. We also discuss current theoretical challenges and the current state of empirical research on relational contracts. We conclude by discussing potentially fruitful areas for future research.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-resource-101719-034514
2020-10-06
2024-06-23
Loading full text...

Full text loading...

/deliver/fulltext/resource/12/1/annurev-resource-101719-034514.html?itemId=/content/journals/10.1146/annurev-resource-101719-034514&mimeType=html&fmt=ahah

Literature Cited

  1. Aggarwal RM 2007. Role of risk sharing and transaction costs in contract choice: theory and evidence from groundwater contracts. J. Econ. Behav. Organ. 63:475–96
    [Google Scholar]
  2. Aghion P, Holden R 2011. Incomplete contracts and the theory of the firm: What have we learned over the past 25 years?. J. Econ. Perspect. 25:181–97
    [Google Scholar]
  3. Antràs P, Foley F 2015. Poultry in motion: a study of international trade finance practices. J. Political Econ. 123:809–52
    [Google Scholar]
  4. Arouna A, Michler JD, Lokossou JC 2019. Contract farming and rural transformation: evidence from a field experiment in Benin. NBER Work. Pap. 25665
    [Google Scholar]
  5. Ashraf N, Giné X, Karlan D 2009. Finding missing markets (and a disturbing epilogue): evidence from an export crop adoption and marketing intervention in Kenya. Am. J. Agric. Econ. 91:973–90
    [Google Scholar]
  6. Baker G, Gibbons R, Murphy KJ 1994. Subjective performance measures in optimal incentive contracts. Q. J. Econ. 109:1125–56
    [Google Scholar]
  7. Baker G, Gibbons R, Murphy KJ 2002. Relational contracts and the theory of the firm. Q. J. Econ. 117:39–84
    [Google Scholar]
  8. Banerji A, Meenakshi J, Khanna G 2012. Social contracts, markets and efficiency: groundwater irrigation in North India. J. Dev. Econ. 98:228–37
    [Google Scholar]
  9. Barrett CB, Bachke ME, Bellemare MF, Michelson HC, Narayanan S, Walker TF 2012. Smallholder participation in contract farming: comparative evidence from five countries. World Dev. 40:715–30
    [Google Scholar]
  10. Beckmann V, Boger S 2004. Courts and contract enforcement in transition agriculture: theory and evidence from Poland. Agric. Econ. 31:251–63
    [Google Scholar]
  11. Bellemare MF, Bloem JR 2018. Does contract farming improve welfare? A review. World Dev. 112:259–71
    [Google Scholar]
  12. Bernheim B, Whinston M 1998. Incomplete contracts and strategic ambiguity. Am. Econ. Rev. 88:902–32
    [Google Scholar]
  13. Blouin A, Macchiavello R 2019. Strategic default in the international coffee market. Q. J. Econ. 134:895–951
    [Google Scholar]
  14. Bolton P, Dewatripont M 2005. Contract Theory Cambridge, MA: MIT Press
    [Google Scholar]
  15. Breitmoser Y 2015. Cooperation, but no reciprocity: individual strategies in the repeated prisoner's dilemma. Am. Econ. Rev. 105:2882–910
    [Google Scholar]
  16. Bubb R, Kaur S, Mullainathan S 2018. The limits of neighborly exchange. Work. Pap., Univ. Calif., Berkeley
    [Google Scholar]
  17. Burchardi KB, Gulesci S, Lerva B, Sulaiman M 2019. Moral hazard: experimental evidence from tenancy contracts. Q. J. Econ. 134:281–347
    [Google Scholar]
  18. Cahyadi ER, Waibel H 2016. Contract farming and vulnerability to poverty among oil palm smallholders in Indonesia. J. Dev. Stud. 52:681–95
    [Google Scholar]
  19. Casaburi L, Macchiavello R 2019. Demand and supply of infrequent payments as a commitment device: evidence from Kenya. Am. Econ. Rev. 109:523–55
    [Google Scholar]
  20. Casaburi L, Willis J 2018. Time versus state in insurance: experimental evidence from contract farming in Kenya. Am. Econ. Rev. 108:3778–813
    [Google Scholar]
  21. Cason T, Wu S 2019. Subject pools and deception in agricultural and resource economics experiments. Environ. Resour. Econ. 73:743–58
    [Google Scholar]
  22. Dal Bó P, Fréchette GR 2011. The evolution of cooperation in infinitely repeated games: experimental evidence. Am. Econ. Rev. 101:411–29
    [Google Scholar]
  23. Dal Bó P, Fréchette GR 2018. On the determinants of cooperation in infinitely repeated games: a survey. J. Econ. Lit. 56:60–114
    [Google Scholar]
  24. Deb R, Suri T 2013. Endogenous emergence of credit markets: contracting in response to a new technology in Ghana. J. Dev. Econ. 101:268–83
    [Google Scholar]
  25. Drescher K 2000. Assessing aspects of agricultural contracts: an application to German agriculture. Agribusiness 16:685–98
    [Google Scholar]
  26. FAO (Food Agric. Organ.) 2017. Contract farming and the law: What do farmers need to know? Rep. I7581EN/1/07.17, FAO, Rome. https://www.fao.org/3/a-i7581e.pdf
    [Google Scholar]
  27. Fudenberg D, Rand DG, Dreber A 2012. Slow to anger and fast to forgive: cooperation in an uncertain world. Am. Econ. Rev. 102:720–49
    [Google Scholar]
  28. Gibbons R 1992. Game Theory for Applied Economists Princeton, NJ: Princeton Univ. Press
    [Google Scholar]
  29. Gil R, Zanarone G 2016. New frontiers in the empirical research on informal contracting. J. Inst. Theor. Econ. 172:390–407
    [Google Scholar]
  30. Gil R, Zanarone G 2017. Formal and informal contracting: theory and evidence. Annu. Rev. Law Soc. Sci. 13:141–59
    [Google Scholar]
  31. Gil R, Zanarone G 2018. On the determinants and consequences of informal contracting. J. Econ. Manag. Sci. 27:726–41
    [Google Scholar]
  32. Giné X, Jacoby H 2020. Contracting under uncertainty: groundwater in South India. Quant. Econ. 11:399–435
    [Google Scholar]
  33. Goodhue R 2000. Broiler production contracts as a multi-agent problem: common risk, incentives and heterogeneity. Am. J. Agric. Econ. 82:606–22
    [Google Scholar]
  34. Halac M 2012. Relational contracts and the value of relationships. Am. Econ. Rev. 102:750–79
    [Google Scholar]
  35. Hayami Y, Otsuka K 1993. The Economics of Contract Choice: An Agrarian Perspective Oxford, UK: Clarendon
    [Google Scholar]
  36. Hueth B, Ligon E, Wolf S, Wu S 1999. Incentive instruments in fruit and vegetable contracts: input control, monitoring, measuring, and price risk. Rev. Agric. Econ. 21:374–89
    [Google Scholar]
  37. Jacoby HG, Murgai R, Rehman SU 2004. Monopoly power and distribution in fragmented markets: the case of groundwater. Rev. Econ. Stud. 71:783–808
    [Google Scholar]
  38. Klein B, Leffler K 1981. The role of market forces in assuring contractual performance. J. Political Econ. 89:615–41
    [Google Scholar]
  39. Leegomonchai P, Vukina T 2005. Dynamic incentives and agent discrimination in broiler production tournaments. J. Econ. Manag. Strategy 14:849–77
    [Google Scholar]
  40. Levin J 2003. Relational incentive contracts. Am. Econ. Rev. 93:835–57
    [Google Scholar]
  41. Macchiavello R 2018. A mutually beneficial relationship: relational contracts in developing countries. In A Research Agenda for New Institutional Economics, ed. C Ménard, MM Shirley, pp. 53–69. Northampton/Cheltenham, UK: Elgar
    [Google Scholar]
  42. Macchiavello R, Miquel-Florensa P 2018. Vertical integration and inter-firm relationships: evidence from the Costa Rica coffee chain. Work. Pap., London Sch. Econ.
    [Google Scholar]
  43. Macchiavello R, Miquel-Florensa P 2019. Buyer-driven upgrading in GVCs: the sustainable quality program in Colombia. Work. Pap., London Sch. Econ.
    [Google Scholar]
  44. Macchiavello R, Morjaria A 2015. The value of relationships: evidence from a supply shock to Kenyan rose exports. Am. Econ. Rev. 105:2911–45
    [Google Scholar]
  45. Macchiavello R, Morjaria A 2019. Competition and relational contracts in the Rwanda coffee chain. Work. Pap., Northwestern Univ., Evanston, IL
    [Google Scholar]
  46. [Google Scholar]
  47. MacDonald J, Burns C 2019. Marketing and production contracts are widely used in U.S. agriculture. USDA Amber Waves Blog, July 1. https://www.ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/
    [Google Scholar]
  48. MacLeod WB 2007. Reputations, relationships, and contract enforcement. J. Econ. Lit. 45:595–628
    [Google Scholar]
  49. MacLeod WB, Malcomson JM 1989. Implicit contracts, incentive compatibility, and involuntary unemployment. Econometrica 57:447–80
    [Google Scholar]
  50. Michelson HC 2013. Small farmers, NGOs, and a Walmart world: welfare effects of supermarkets operating in Nicaragua. Am. J. Agric. Econ. 95:628–49
    [Google Scholar]
  51. Michelson HC, Reardon T, Perez F 2011. Small farmers and big retail: trade-offs of supplying supermarkets in Nicaragua. World Dev. 40:342–54
    [Google Scholar]
  52. Michler JD, Wu SY 2019. The effects of governance on relational and formal contracts: theory and evidence from groundwater irrigation markets. Work. Pap., Univ. Ariz., Tempe
    [Google Scholar]
  53. Otsuka K, Nakano Y, Takahashi K 2016. Contract farming in developed and developing countries. Annu. Rev. Resour. Econ. 8:353–76
    [Google Scholar]
  54. Rao EJ, Brümmer B, Qaim M 2012. Farmer participation in supermarket channels, production technology, and efficiency: the case of vegetables in Kenya. Am. J. Agric. Econ. 94:891–912
    [Google Scholar]
  55. Rogerson WP 1985. The first-order approach to principal–agent problems. Econometrica 53:1357–67
    [Google Scholar]
  56. Saenger C, Torero M, Qaim M 2014. Impact of third-party contract enforcement in agricultural markets: a field experiment in Vietnam. Am. J. Agric. Econ. 96:1220–38
    [Google Scholar]
  57. Schipmann C, Qaim M 2011. Supply chain differentiation, contract agriculture, and farmers’ marketing preferences: the case of sweet pepper in Thailand. Food Policy 36:667–77
    [Google Scholar]
  58. Schmitz K, Schnitzer M 1995. The interaction of explicit and implicit contracts. Econ. Lett. 48:193–99
    [Google Scholar]
  59. Singh S 2002. Contracting out solutions: political economy of contract farming in the Indian Punjab. World Dev. 30:1621–38
    [Google Scholar]
  60. Telser L 1980. A theory of self-enforcing agreements. J. Bus. 53:27–44
    [Google Scholar]
  61. Ton G, Vellema W, Desiere S, Weituschat S, D'Haese M 2018. Contract farming for improving smallholder incomes: What can we learn from effectiveness studies?. World Dev. 104:46–64
    [Google Scholar]
  62. [Google Scholar]
  63. Wang HH, Wang Y, Delgado MS 2014. The transition to modern agriculture: contract farming in developing economics. Am. J. Agric. Econ. 96:1257–71
    [Google Scholar]
  64. Wu S, MacDonald J 2015. Economics of agricultural contract grower protection legislation. Choices, Quarter 3. http://www.choicesmagazine.org/UserFiles/file/cmsarticle_462.pdf
    [Google Scholar]
/content/journals/10.1146/annurev-resource-101719-034514
Loading
  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error