Tournament Mechanism in Wine-Grape Contracts: Evidence from a French Wine CooperativeReport as inadecuate

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1 AGIR - AGrosystèmes et développement terrItoRial 2 LEREPS - Laboratoire d-Etude et de Recherche sur l-Economie, les Politiques et les Systèmes Sociaux

Abstract : This article analyzes the contractual relationship between a wine cooperative winery and its member growers. This relationship is plagued by moral hazard and adverse selection problems in grape quality. Indeed, growers can be opportunistic since the cooperative is unable to observe: i their effort level due to imperfect monitoring technology; ii their productive abilities types due to adverse selection. Because the growers- vineyard practices and efforts are one of the main determinants of grape quality, the cooperative implements an incentive compensation system to induce growers to provide the maximum effort towards quality. This compensation scheme is similar to that in tournaments Lazear and Rosen, 1981; Green and Stokey, 1983; Knoeber, 1989; Prendergast, 1999. In our case, the cooperative promotes competition between growers by offering a promotion, while, at the same time, organizing the contest by creating homogenous groups of growers using a menu of contracts and monitoring through regular visits to the vineyard. Using a database of 1219 contracts, we test the effect of: i the cooperative-s tournament compensation scheme; ii the menu of contracts and monitoring mechanism. The results of our econometric estimations provide some confirmation of both effects.

Keywords : Wine grape supply contracts quality tournament cooperative

Author: M-Hand Fares - Luis Orozco -



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