Do Transaction Costs and Risk Preferences Influence Marketing Arrangements in the Illinois Hog Industry?

J.R.V. Franken, J.M.E. Pennings, P. Garcia

Research output: Contribution to journalArticleAcademicpeer-review

13 Citations (Scopus)

Abstract

Risk reduction and transaction costs are often used to explain contracting in the U.S. hog industry with little empirical support. Using a unified conceptual framework that draws from risk behavior and transaction cost theories, in combination with unique survey and accounting data, we demonstrate that risk preferences and asset specificity impact Illinois producers’ use of contracts and spot markets. In particular, producers’ investments in specific hog genetics and human capital are related to selection of long-term marketing contracts over spot markets. Producers who perceive greater levels of price risk and/or are more averse are more (less) likely to use contracts (spot markets). Key words: asset specificity, contracts, hogs, risk attitude, risk behavior, risk perception, transaction costs economics
Original languageEnglish
Pages (from-to)297-315
JournalJournal of Agricultural and Resource Economics
Volume34
Issue number2
Publication statusPublished - 2009

Keywords

  • vertical integration
  • pork industry
  • economics
  • contract
  • ownership
  • producers
  • construct
  • attitude
  • farmers
  • issues

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