CONTRACT INCENTIVES AND EXCESSIVE NITROGEN USE IN AGRICULTURE

This study examines incentives for input use under tournament contracts. We analyze implications of contract design for nitrate-based environmental externalities generated by agricultural producers. Outcomes are compared from contracts awarded by tournament to those from fixed-payment contracts. Our findings show contract insecurity can distort input use. The model developed in this analysis is applied to a region of the U.S. where tournament-based production is prevalent and groundwater contamination is a problem. We find contract insecurity increases nitrogen use by about 12%, resulting in a 17% increase in nitrate leaching. Implications for contract modification to reduce environmental externalities while maintaining contract incentives are discussed.
Cite

Citation

Preckel, Paul V.; Shively, Gerald E.; Baker, Timothy G.; Chu, Mei-Chin; Burrell, Jessica Eide, CONTRACT INCENTIVES AND EXCESSIVE NITROGEN USE IN AGRICULTURE, Journal of Agricultural and Resource Economics, Volume 25, Issue 2, December 2000, Pages 468–484

Share on twitter
Share on linkedin
Share on facebook