Time Series Analysis of a Principal-Agent Model to Assess Risk Shifting and Bargaining Power in Commodity Marketing Channels

W.E. Kuiper, J.K.M. Kuwornu, J.M.E. Pennings

Research output: Contribution to conferenceConference paper

Abstract

We apply the classic agency model to investigate risk shifting in an agricultural marketing channel, using time series analysis. We show that if the principal is risk-neutral and the agent is risk-averse instead of risk-neutral, then a linear contract can still be optimal if the fixed payment is negative. Empirical results for the Dutch potato marketing channel indicate that while fixed payments to farmers (agents) have decreased over time, even to negative levels, the incentive intensity has approximately doubled, and the risk premium the farmers ask for has remained considerable. These results imply that risk has shifted from wholesalers, processors, and retailers to farmers; we argue that this shift could be the consequence of chain reversal, i.e., the transformation of the traditional supply chain into a demand-oriented chain.
Original languageEnglish
Publication statusPublished - 2003
EventAmerican Agricultural Economics Association, Annual Meeting, July 27-30, 2003, Montreal, Canada -
Duration: 27 Jul 200330 Jul 2003

Conference

ConferenceAmerican Agricultural Economics Association, Annual Meeting, July 27-30, 2003, Montreal, Canada
Period27/07/0330/07/03

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    Kuiper, W. E., Kuwornu, J. K. M., & Pennings, J. M. E. (2003). Time Series Analysis of a Principal-Agent Model to Assess Risk Shifting and Bargaining Power in Commodity Marketing Channels. Paper presented at American Agricultural Economics Association, Annual Meeting, July 27-30, 2003, Montreal, Canada, . http://purl.umn.edu/22046