adapting contract theory to fit contract farming this article discusses the current state of contract theory and its usefulness for conceptualizing issues related to agricultural contracting i will discuss the limitations of existing theory for applied work and what methodological improvements are needed to enhance the usefulness of the theory to agricultural economists one pervasive problem is that the canonical economic literature on contracts is rather fragmented and the various methodological strands are narrow in their focus as such there is a need for agricultural economists to engage in methodological research to develop applied contracting models that can capture higher order features of real world agricultural contracts while delivering generalizable comparative statics predictions the need for such research is obvious as contracting continues to expand along the entire modern food marketing channel in the latter part of this article i develop a simple model to illustrate how classic methodological approaches can be combined with recent developments in contract and game theory to construct applied theory models that are useful for capturing some important features of agricultural contracts

a globally flexible almost ideal demand system the almost ideal demand system is combined with the fourier expenditure system subject to the assumption that preferences are of the price independent generalized logarithmic class the resulting demand system has the desirable features of each of its components aggregate demand equations are consistent with preferences of a representative consumer and consistent estimates of elasticities are obtained for all observed prices application of the new demand system to u s consumption of meats and fish reveals that it fits the data well and that the restriction to the usual specification is rejected

the nested piglog model an application to u s food demand a new demand system is introduced the nested piglog model nesting thirteen other demand systems including five that are also new this new model and its nested special cases are applied to models of u s food demand that include food at home fah food away from home fafh and alcoholic beverages although nested tests and out of sample forecasting performance favor generalizing models to a certain degree statistically insignificant improvements to in sample fit and even poorer out of sample forecast accuracy undermine further generalizations based on a subset of preferred models fafh is found to be price and income elastic compared to fah which is price and income

indirect addilog translation of indirect utility functions the difficulty of specifying a set of consumer demand equations that can simultaneously display compatibility with rational economic behaviour regularity and have the capacity to represent a comprehensive spectrum of consumer behaviour flexibility is well known a variety of approaches have been investigated in the literature but scope for substantial improvement remains the approach of this paper is to start from indirect utility functions producing globally regular if inflexible systems and to improve flexibility by adding parameters through a device termed indirect addilog translation on connait bien la difficulte de specifier un ensemble d equations de demande du consommateur qui puisse en meme temps etre compatible avec un comportement economique rationnel regularite et avoir la capacite de representer un spectre comprehensif de comportements du consommateur flexibilite la litterature specialisee a propose une variete d approches mais il y a encore place a beaucoup d amelioration l approche suggeree dans ce memoire part des fonctions indirectes d utilite qui produisent des systemes globalement reguliers meme s ils sont inflexibles et en ameliore la flexibilite en ajoutant des parametres via un procede qu on a nomme traduction indirecte addilog

weak separability and the estimation of elasticities in multistage demand systems the necessary conditions for multistage budgeting to be at least approximately justified are reviewed and the plausibility of these assumptions i e weak separability and low variability of price indices with utility level are discussed using no further assumptions simple relationships between expenditure and price elasticities in different budgeting levels are derived these results are applied to a three stage model for swedish food consumption and it is shown that the assumptions are not inappropriate restricting the analysis to the last stage of a multistage budgeting process is also shown to lead to considerable errors which could well have policy consequences

conditional and unconditional food demand elasticities in a dynamic multistage demand system this paper estimates conditional and unconditional demand elasticities in a three stage analysis of consumer demand for food and non food items in greece a dynamic version of the aids model is specified and estimated and full system misspecification tests applied correction formulas for price and expenditure elasticities are used to calculate unconditional elasticities from conditional demand sub systems all food items rank as price inelastic deviations between the calculated conditional and unconditional price and expenditure elasticities are found to be significant demonstrating the importance of correcting conditional elasticities before they can be used for policy purposes or welfare analyses

the us retail demand for fish products an application of the almost ideal demand system the main objective is to address the limitations of past us fish demand research through the development of a variation of the almost ideal demand system model for disaggregate fish products at the retail level price and expenditure elasticities as well as elasticities of substitution between fish products and other protein commodities determined from this work may be used in the context of fisheries management and market development and promotion results indicate that with the exception of shellfish demand for the various fish products is relatively inelastic cross price elasticities are generally moderate while expenditure elasticities are large and positive for fresh fish and shellfish demographic effects especially geographical division season race occupation age sex household composition and price income interaction as a proxy for quality are highly significant variables

simulating the impacts of contract supplies in a spot market contract market equilibrium setting this article embeds a principal agent model within a market equilibrium model of contract and cash markets to analyze the impact of contracting on the spot market for hogs the equilibrium model incorporates both quality differentiation in the contract market and an endogenously determined cash market price for three types of contracting scenarios market equilibrium conditions are derived and results are presented for a numerical example contrary to some empirical results our model shows that the increased supply of hogs under typical formula price contracts can increase or decrease the cash market price depending on the relative size of overall contract supplies

electricity demand by time of use an application of the household aids model in this study we estimated the price and expenditure elasticities of peak and off peak electricity consumption using a micro data set on 220 households living in 19 swiss cities the household version of the almost ideal demand system model aids was used as a framework to incorporate household characteristics the aids model was expanded by specifying the intercept as a linear function of household characteristics variables results indicate that demand for peak and off peak electricity is elastic and that cross price effects are positive as well as the elasticity of substitution therefore peak and off peak electricity are substitutes in the hicks allen sense

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

the effect of unanticipated money on the money and foreign exchange markets abstract a number of studies have attempted to determine why unanticipated increases in the money supply are positively correlated with money market interest rates by examining the response of the foreign exchange market to unanticipated changes in the money stock they have found a significant positive relationship between unanticipated increases in the money supply and the foreign exchange value of the dollar and have interpreted this as evidence for the anticipated liquidity effect hypothesis however these results support this hypothesis only if both markets respond simultaneously to unanticipated changes in money this paper examines the cross market consistency of the response using six bilateral exchange rates and the treasury bill rate all measured over a narrow time interval the results show that in general these markets do not respond simultaneously to money announcements

evaluating prior beliefs in a demand system the case of meat demand in canada an almost ideal demand system for meats is estimated using canadian data a bayesian approach is used to impose inequality restrictions on substitution elasticities via monte carlo integration and importance sampling in order to conform with prior beliefs about curvature and monotonicity restrictions and substitution relationships results are more consistent with the concavity and monotonicity restrictions from demand theory than with the added restriction that all meats are substitutes

a primer on cardinal versus ordinal tournaments i introduction the tournament literature has considered primarily two relative performance evaluation schemes that are consistent with what we observe in practice the rationale behind each of these incentive schemes is that relative performance evaluation is useful when agent performance is subject to common shocks in which case individual performance is not a sufficient statistic for individual effort that is the performance of other agents can enhance the inference of the effort exerted by an individual agent one important difference between these schemes is that under rank order or ordinal tournaments the prizes are prespecified and agents compete for rank by contrast under two part piece rate or cardinal tournaments the total prize is fixed and agents compete for a share of the pie 1 each agent receives a base payment and a bonus depending on the difference of his performance from the average performance of his peers 2 average performance provides an informative signal about the value of common shocks inflicted on agents ordinal tournaments are prevalent in contests where rank is more important than individual performance for instance sports contests where contestants compete for medals or fixed prizes or when individual performance data are not readily available for instance promotion contests where the individual contribution of contestants cannot easily be separated from that of their co workers or subordinates by contrast cardinal tournaments are popular in several occupations or industries where cardinal performance data are readily available e g salesmen contracts physician contracts with hmos and agricultural contracts 3 both ordinal and cardinal tournaments are relatively simple to design even though they are only proxies of theoretically optimal schemes 4 prior literature has contrasted the efficiency properties of either ordinal or cardinal tournaments against those of piece rates under piece rates each agent is evaluated according to his absolute performance thus agents receive a base payment and a bonus which is based typically linearly on their individual output 5 piece rates are sometimes expressed as fixed performance standards when an agent s performance is evaluated against a fixed standard instead of the average output obtained lazear and rosen 1981 green and stokey 1983 and nalebuff and stiglitz 1983 have shown that ordinal tournaments are superior to piece rates when agent activities are subject to common shocks that affect performance 6 more recently marinakis and tsoulouhas 2012 2013 investigated and verified this result for cardinal tournaments relative performance evaluation via tournaments constitutes a pareto superior move by removing common uncertainty from the responsibility of agents and by charging a premium for this insurance the principal increases his profit without hurting the agents moreover by providing this type of insurance tournaments enable the principal to implement higher power incentives than under piece rates what is still an open question in the literature above is a comparison of ordinal to cardinal tournaments the consensus among tournament theorists is that even though ordinal tournaments are informationally wasteful as in holmstrom 1982 by ignoring the agents cardinal performance data if available they are however more general because they are less restrictive on the functional form of the contract i e they are step functions with a linear or non linear trend part of the appeal is that the founders of tournament theory focused on ordinal tournaments nevertheless a significant part of the current tournament literature has analyzed cardinal tournaments instead 7 this paper fills in this gap in theory by developing a framework that can be used to analyze both cardinal and ordinal tournaments as well as piece rates and in doing so it provides a primer on tournaments and piece rates

maintaining and testing separability in demand systems we derive a general elasticity representation of the necessary and sufficient conditions for direct weak separability of the utility function parametric restrictions required to implement the separability conditions are presented for three common demand systems the almost ideal translog and rotterdam our empirical application uses the rotterdam model to test a few separable structures within a complete u s demand system emphasizing food commodities results based on size corrected likelihood ratio tests provide support for commonly used separability assumptions about food and meat demand

tournaments fairness and risk we estimate willingness to pay wtp to operate under two types of contracts tournaments ts and fixed performance standard contracts f our results are consistent with the notion that subjects having social preferences for fairness and care about risk that is when subjects experience greater inequity under tournaments relative to fixed performance contracts or experience greater revenue risk under tournaments the gap between wtp for fixed performance and tournament contracts increases ceteris paribus our results provide an explanation for grower dissatisfaction with tournament compensation schemes independent of possible concerns regarding opportunistic behavior by integrators

on price indices in the almost ideal demand system a number of papers have discussed the relationship between the almost ideal demand system aids and its linear approximation la aids in this paper it is shown that if the prices in the system are normalized to one the aids and la aids representations are identical at the point of normalization also at the point of normalization the expressions for price and expenditure elasticities from both systems are identical

estimating a demand system with nonnegativity constraints mexican meat demand a new information based approach for estimating systems of many equations with nonnegativity constraints is presented this approach called generalized maximum entropy gme is more practical and

are tournaments optimal over piece rates under limited liability for the principal a highly acclaimed result is that tournaments are superior to piece rates when the agents are risk averse and their production activities are subject to a relatively large common shock the reason is that tournaments allow the principal to trade insurance for lower income to the agents our analysis shows that this celebrated result does not carry over to the case when a limited liability bankruptcy constraint limits the payments the principal can make provided that the liquidation value of the firm is sufficiently small this finding has important implications for the vast number of limited liability firms even though limited liability becomes an issue for different ranges of liquidation values under the two schemes tournaments are still superior when the liquidation value of the firm is intermediate or large even though the limited liability constraint is still binding for intermediate values surprisingly uncertainty in the price of output strengthens the need for tournaments by expanding the range of liquidation values over which tournaments are dominant because price uncertainty introduces additional bankruptcy risk these findings provide insight into policy implications in the contracting out of services by state and local governments in procurement in rent seeking contests and in tournaments used by hmos

semi non parametric estimates of substitution for canadian monetary assets we estimate the dynamic fourier expenditure system to obtain consistent estimates of short run and long run morishima elasticities of substitution for canadian liquid assets we argue that the variability of the estimated elasticities and evidence of less than perfect substitution between monetary assets interferes with the successful use of simple sum aggre gates and traditional log linear money demand functions

a globally flexible quadratic almost ideal demand system an application to demand for meats and fish in taiwan a new demand system called a globally flexible quadratic almost ideal demand system gf quaids integrates both the quadratic engel curve and the fourier series this novel gf quaids model is applied to study the demand for meats and fish in taiwan empirical results show that the gf quaids fits the data well and that by using the likelihood ratio test its nested models are rejected including the locally flexible functional form and the linear engel curve nevertheless other empirical model selection measures indicate that the gf quaids can be as good as its famous nested models such as the aids quaids and gf aids

behavioral and welfare effects of tournaments and fixed performance contracts some experimental evidence using experimental economics we compare the efficiency and welfare effects of tournaments and fixed performance contracts our subjects agents were generally better off under fixed performance contracts but the advantage of the fixed performance contract disappears if the relative magnitude of the standard deviation of the common shock exceeds a critical value efficiency wise agents tend to exert higher effort under fixed performance contracts on average additionally an increase in the common shock standard deviation appeared to be associated with lower effort under tournaments our results shed light on the potential impact of legislative proposals to ban tournament contracts

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 agent s grower s under investment systematically depends on the principal s integrator s 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 principal s market power the results show moderate empirical support for the presence of hold up

regulating broiler contracts tournaments versus fixed performance standards grower discontent with tournaments as mechanisms for settling poultry contracts can largely be attributed to the group composition risk that tournaments impose on growers this article focuses on the welfare effects of a widely advocated regulatory proposal to prevent integrator companies from using tournaments and replace them with schemes that compare performance to a fixed standard the analysis shows that the mandatory replacement of tournaments with fixed performance standards absent any rules that regulate the magnitude of the piece rate can decrease grower income insurance without raising welfare however replacing tournaments with fixed performance standards can simultaneously increase income insurance and welfare provided that the magnitude of the piece rate is also regulated

modeling the demand for alcoholic beverages and advertising specifications in this paper the demand for beer wine spirits and soft drinks in ontario is modeled in two parts an equation is specified to endogenize group expenditures and a demand system is set up to allocate budgeted group expenditures across types of beverages advertising is allowed to influence both the level of group expenditures and its allocation three popular advertising specifications are compared using the j test and the likelihood dominance criterion even though all three specifications fitted well according to standard criteria the calculated expenditure price and advertising elasticities were sensitive to the manner with which advertising is specified this clearly highlights the need to rely on a sound criterion to identify a dominant specification from the identified dominant specification we found that advertising has very subtle effects on expenditures on alcoholic beverages group and individual beverages thus advertising is not effective in enlarging markets and this suggests that firms especially breweries use advertising to compete in zero sum market share games from a public policy perspective our results are comforting but future research should investigate whether the neutral effect of advertising on aggregated expenditures hide substantial offsetting changes in the drinking habits of individuals 2000 elsevier science b v all rights reserved

do tournaments solve the two sided moral hazard problem abstract the paper analyzes the optimality of relative performance evaluation via two part piece rate tournaments in incentive contracting with multiple agents and two sided moral hazard if the agents are risk averse it is shown that a tournament is optimal only when the following conditions hold i there is common uncertainty inflicted on the activities of the agents that is not contingent on their actions but can be contingent on the principal s action ii the principal sufficiently saves in transaction costs by employing a tournament iii the number of agents is sufficiently large then the feedback effect of using a tournament to monitor the agents is that the principal s moral hazard problem is relaxed when the principal takes a single action it can also be relaxed when the principal can vary her actions with the agents but there are economies of scale in her activity absent common uncertainty the optimum scheme is shown to be a fixed performance standard rather than a tournament but if the agents are risk neutral a tournament can still be optimal provided that ii and iii hold

saving money vs investing money do energy ratings influence consumer demand for energy efficient goods abstract the article analyses economic barriers leading to the energy efficiency gap in the market for energy using products by observing several million transactions in the uk over two years the empirical exercise estimates aids models for refrigerators washing machines tvs and light bulbs results indicate that market barriers are crucial in the demand for energy efficient options and consumer response to changes in appliance prices total expenditures and energy prices depends on the possibility of behavioural adjustments in consumption in contrast with the induced innovation hypothesis current electricity prices can fail to induce innovation because of their short term impact on disposable income while consumers invest in energy efficiency when expecting electricity prices to rise in the future

a box cox consumer demand system nesting the almost ideal model this article proposes a consumer demand system that has a generalized functional form characterized by the box cox transformation the new model offers a wider range of responses to both price and expenditure changes than the existing price independent generalized linear models including the almost ideal demand system even with these features its functional form is relatively simple and easy to interpret and implement an empirical illustration is given for japanese demand for nondurable goods and services the results show that the new model is preferable to the nested models in terms of relative explanatory power and producing reasonable elasticities

a new market for an old food the u s demand for olive oil while u s consumption of olive oil has tripled over the past two decades nearly all olive oil continues to be imported estimation of a demand system using monthly import data reveals that the income elasticity for virgin oils sourced from eu is above one but demand for nonvirgin oils is income inelastic the demand for olive oil as a single product is price inelastic differentiated by product characteristic and origin olive oils are highly substitutable with each other but not with other vegetable oils news about the health and culinary benefits of olive oil and the spread of mediterranean diet contribute significantly to the rising demand

an empirically oriented demand system with improved regularity properties while the almost ideal demand system has received increasing attention in empirical studies of consumer demand the fact that the underlying piglog cost function is not globally regular has often led to violation of negative semidefiniteness in the estimated slutsky matrix this paper suggests a modification to the piglog class of preferences termed mpiglog which preserves regularity in a wider region of expenditure price space in an empirical section the almost ideal demand system special case of piglog is compared with the analogous special case of mpiglog which the authors term maids the comparison demonstrates the improved regularity features of maids

the economic effects of franchise termination laws we would like to thank blake rhodes and pam schommer for excellent research assistance participants in workshops at arizona state university university of california berkeley the university of chicago dartmouth college iowa state university the justice department the university of rochester and the university of utah as well as jeff coles arnold cowan jim dana franklin m fisher stuart gilson ben hermalin cliff holderness gregg jarrell alan krueger wayne mikkelson walter oi jim poterba ajai singh cliff smith kathy spier david weisbach jamie zender jerry zimmerman and especially kevin j murphy and an anonymous referee for comments on an earlier draft brickley and weisbach thank the managerial economics research center of the university of rochester and the john m olin foundation and dark thanks the college of business at iowa state university for financial support brickley also thanks the garn institute of finance at the university of utah for financial assistance 1 see mark robichaut franchise rules are back off drawing board wall st j july 6 1990 at bl note that in this article we focus on laws that apply to business format franchises for an analysis of state laws in automobile franchising see richard l smith ii franchise regulation an economic analysis of state restrictions on automobile distribution 25 j law econ 125 1982 richard a epstein unconscionability a critical appraisal 18 j law econ 293 314 15 1975 and paul h rubin the theory of the firm and the structure of the franchise contract 21 j law econ 223 1978 other work on the economics of franchising includes james a brickley frederick h dark the choice of organizational form the case of franchising 18 j fin econ 401 1987 james a brickley frederick h dark michael s weisbach an agency perspective on franchising 20 fin mgmt 1991 in

new indices of money supply and the flexible laurent demand system the article begins by surveying the existing results on the new divisia monetary aggregates charts display the differences in behavior between the divisia aggregates and the federal reserve s official simple sum monetary aggregates the article then compares system wide fit for the simple sum and divisia monetary aggregates when used as data in the joint estimation of a system of demand equations the demand system is derived from a new laurent expansion approximation to the reciprocal indirect utility function the laurent expansion provides a better behaved remainder term than that of the more commonly used taylor series the results favor the divisia aggregates

evaluating the linearized almost ideal demand system linearizing the almost ideal demand system laids by recourse to the stone share weighted price index is common practice two issues are addressed here first scrutiny of the errors in variables implications of the linearization reveals that not only is the sur estimator inconsistent but a consistent iv estimator cannot be constructed second some alternatives to the green alston elasticities specifically designed for the laids model are developed but neither these nor the green alston elasticities are found to have any advantages over the conventional elasticity formulae some errors in the green alston 1990 paper are corrected the inconsistency and elasticity issues are documented by a monte carlo investigation

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

an almost ideal demand system incorporating habits an analysis of expenditures on food and aggregate commodity groups breusch t s and a r pagan the lagrange multiplier test and its applications to model specification in econometrics the review of economic studies 47 jan 1980 239 254 eden benjamin the insurance buying gambler economic inquiry 18 july 1980 504 508 henderson charles f estimation of variance and covariance components biometrics 9 june 1953 226 252 hill daniel h deborah a ott lester d taylor and james m walker incentive payments in time of day electricity pricing experiments the arizona experiment this review 65 feb 1983 59 65 maddala g s and t d mount a comparative study of alternative estimators for variance components models used in econometric applications journal of the american statisticalassociation 68 june 1973 324 328 selby e b and w beranek sweepstakes contests analysis strategies and survey american economic review 71 mar 1981 189 195 spence michael and richard zeckhauser the effect of the timing of consumption decisions and the resolution of lotteries on the choice of lotteries econometrica 40 mar 1972 401 403 wallace thomas d and ashiq hussain the use of error components models in combining cross section with time series data econometrica 37 jan 1969 55 72 winett richard a and michael t nietzel behavioral ecology contingency management of consumer energy use american journal of community psychology 3 june 1975 123 133