Tomislav Vukina

Integrator Contracts with Many Agents and Bankruptcy

This article analyzes optimal livestock production contracts between an integrator company and many independent growers in three similar industries: broiler, turkey, and swine. The analysis provides an explanation for the simultaneous existence of distinct incentive schemes in these industries by examining the effects of bankruptcy. The key factors are shown to be the output price volatility and the firm size. With large companies dominating the broiler industry, a small price volatility facilitates the use of two-part piece rate tournaments. By contrast, given the prevalence of smaller companies in the swine industry, a larger price volatility generates a bankruptcy risk which renders the use of tournaments infeasible. Given the combination of medium-size companies in the turkey industry, an intermediate price volatility produces a mixed result where tournaments and fixed performance standards exist simultaneously. Copyright 1999, Oxford University Press.

Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from the Broiler Industry

In this article we look for empirical evidence of hold-up in broiler industry production contracts by using the cross-sectional national survey of broiler growers. First, we focus on the problem of under-investment and hypothesize that the degree of agents (growers) under-investment systematically depends on the principals (integrators) market power and the level of asset specificity. Second, we provide an indirect test of hold-up by looking at the grower contract payoffs as a function of the frequency of the housing facilities upgrade requests and the principals market power. The results show moderate empirical support for the presence of hold-up.

Hedging with Crop Yield Futures: A Mean-Variance Analysis

This investigation into the use of new Chicago Board of Trade yield futures to manage price and yield risks shows that a risk-minimizing firm can reduce its variance of profit by hedging in both markets compared to hedging in price futures only. The greater the variance of the contract underlying yield, the less effective the two-instrument hedge. Hedging effectiveness of the dual strategy also depends on the price and yield bases, and the effect of a change in either basis depends on whether the established crop yield futures position is short or long. Copyright 1996, Oxford University Press.

Environmental Policies and Agricultural Land Values: Evidence from the Dutch Nutrient Quota System

The paper analyzes the impact of the phosphate-based animal production rights on agricultural land values in the Netherlands. We claim that the existence of mandatory production control program with regional restriction on trading causes a disproportional increase in land prices in the surplus region where the quota is binding, relative to the deficit region where the quota is not binding, and that the increase in the cost of environmental compliance should generate an eroding effect on the existing gap in land prices. The parameters of an inverse land demand model estimated with panel data support both hypotheses.

THE RELATIONSHIP BETWEEN CONTRACTING AND LIVESTOCK WASTE POLLUTION

This paper investigates factors and mechanisms that influence the relationship between contracting and animal waste pollution. The questions raised are whether contracting worsens livestock waste management problems and how to apportion the burden of regulation between the contracting parties in a socially optimal way. The paper shows that the potential linkages between contracting and animal waste depend on scale, specialization, and concentration of animal units, as well as on division of inputs and contract settlement rules. The long-run apportioning of an increase in costs of environmental compliance depends on the integrators market power for grower services. Copyright 2003, Oxford University Press.

Complementarity among Alternative Procurement Arrangements in the Pork Packing Industry

We estimate the economies of scale for a sample of pork packing plants and use these estimates together with two other performance measures (EBIT and gross margin) to examine whether the alternative procurement methods for live hogs are complementary. The results indicate that all procurement arrangements portfolios improve plant performance relative to the simple spot market purchases, but the portfolio coefficients in performance equations do not always monotonically increase with the portfolio order. However, looking at the price packers pay to procure their hogs, the results indicate that plants that use a combination of higher-order procurement arrangements on average pay lower prices relative to plants that use the spot market only. Comparing the magnitudes of the portfolio effects with the magnitudes of the individual procurement arrangement effects shows that individual practices have minimal additional impact on the procurement price, indicating that the procurement methods may be complementary.

ESTIMATING ADVERSE SELECTION AND MORAL HAZARD EFFECTS WITH HOSPITAL INVOICES DATA IN A GOVERNMENT‐CONTROLLED HEALTHCARE SYSTEM

We use invoices for hospital services from a regional hospital in Croatia to test for adverse selection and moral hazard. There are three categories of patients: with no supplemental insurance, who bought it, and who are entitled to it for free. Our identification procedure relies on the premise that the difference in the observed medical care consumption between the patients who bought the insurance and those entitled to free insurance is caused by pure selection effect, whereas the difference in healthcare consumption between the group that received the free insurance and the group that has no insurance is due to moral hazard. Results show favorable selection for patients in 20- to 30-year-old cohort and significant moral hazard for all age cohorts. The selection effect reverses its sign in older cohorts explained by the differences in risk aversion across cohorts caused by the timing of transition from socialism to market economy.

Bargaining, Search, and Price Dispersion: Evidence from the Live Hogs Market

Using unique panel data on individual transactions between buyers and sellers in the spot market for live hogs, we found a large degree of intra-day price dispersion. Motivated by this empirical puzzle, we offer an explanation which is rooted in the bargaining with search theory. We formulate three hypotheses involving the role of farmers’ search cost, bargaining parties’ patience, and asymmetric information that we believe can explain the observed phenomenon. Empirical analysis shows strong support for all three of the stated theoretical predictions, indicating that the bargaining with search theory explains at least 31 percent of the observed intra-day price variation in this market.

A Hotelling-Faustmann Explanation of the Structure of Christmas Tree Prices

We examine the relationship between a tree price and a tree age (height) using a Hotelling-Faustmann type model of optimal plantation management, which accounts for the possibility of replanting and biological growth. The model predictions are tested using the data on Christmas tree prices in North Carolina collected in December 1997. The estimates show that, in general, the rates of change in prices between adjacent age cohorts reflect a competitive equilibrium in the capital market thus supporting the Hotelling-Faustmann paradigm. Copyright 2001, Oxford University Press.

AN ADAPTIVE MODEL OF PERISHABLE INVENTORY DISSIPATION IN A NONSTATIONARY PRICE ENVIRONMENT

The paper develops an adaptive model of perishable commodity dissipation based on the individuals price expectations and risk perception. A two-step, state-space procedure for modeling nonstationary time series is presented. The method combines an impulse response model for estimating deterministic components with an innovations model for the remaining stationary stochastic noise. Combined parameters are used to generate forecasts and to derive a measure of risk in a nonstationary price environment. Defined as the variance (covariance) of out-of-sample forecast error, the measure of risk is the difference between the historical estimate of the stationary noise auto-covariance and the variance (covariance) of out-of-sample forecasts. The optimal marketing strategy for a hypothetical salmon processor who sells to Japanese wholesalers is developed to illustrate the model. The solution is obtained using quadratic programming algorithm.