Incentive Instruments in Fruit and Vegetable Contracts: Input Control, Monitoring, Measuring, and Price Risk

Abstract

Abstract This article examines the structure of contractual relations between growers and first handlers in California fruit and vegetable markets. Evidence on existing structures is collected from on‐site interviews and from a small mail survey of market intermediaries who contract with independent growers. Four generic instruments are identified—input control, field visits, quality measurement, and residual price risk—which are used to coordinate relations between growers and first handlers and which help to alleviate information asymmetries and align incentives between contracting parties. Drawing from our interviews and survey, we offer examples of how each of these instruments are employed.