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Contract Farming in Developing Countries - A Behavioral Perspective on Contract Choice and Compliance

dc.contributor.advisorWollni, Meike Prof. Dr.
dc.contributor.authorFischer, Sabine
dc.titleContract Farming in Developing Countries - A Behavioral Perspective on Contract Choice and Compliancede
dc.contributor.refereeWollni, Meike Prof. Dr.
dc.description.abstractengAlthough there is a lot of evidence for the positive welfare effects of contract farming, it is not clear how to integrate farmers into contracts and how to maintain stable long-term-relationships between farmers and agri-business firms. While Contract Farming is a formal institutional arrangement, the institutional environment of developing countries is oftentimes developed insufficiently. Weak public institutions, such as inefficient courts and administrations, which are common in developing countries, lead to a situation where contract enforcement is reduced or not possible at all. Hence contract breach is frequent and leads to high losses for the disadvantaged party. These issues raise the question of (1) how to design contracts in a way that farmers are willing to join and stay in contract farming schemes and (2) under which conditions contracts will be fulfilled. This dissertation aims at contributing to the related literature on these challenges with two individual research studies. The first study (chapter 2) focuses on farmer’s preferences for contract designs. The second study (chapter 3) focuses on contract compliance. Both studies apply a behavioral perspective on the outlined topics. Chapter 2 presents a study that analyses how preferences affect the choice of contracts. We study the research question with a sample of Ghanaian Pineapple Farmers. Methodically this study applies both a discrete choice experiment and lab experiments and allows for analyzing the relationship between preferences elicited with both methodologies. By using canonical lab experiments with monetary incentives to elicit behavioral preferences we can derive information on individual motivations that drive contract choices. We find that experimental measures of trust, risk and time preferences can predict preferences for contract attributes. Especially trust has economically important effects on the willingness to pay for transparent quality controls. Differences in preferences for timing of payment and timing of agreement making cannot be explained by trust levels but by time preferences. Risk-sharing in form of reduced quality requirements is less important for risk-seeking individuals compared to risk-neutral or risk-averse farmers. Including behavioral preferences can significantly improve the explanatory power of the models. Our results indicate that preferences affect farmers’ participation constraints and argue that a diversification of contract offers might increase the willingness of farmers to participate in contract farming. This has implications for companies who aim at developing stable long-term relationships with farmers. Chapter 3 presents a study that examines the preferences for contract compliance if formal enforcement mechanisms are absent. Several studies have shown that people do have preferences for keeping promises (Vanberg 2008) and fulfilling contracts (Bartling and Schmidt 2015) even though explicit incentives for doing so are missing. Using a lab-in-the-field experiment among Ghanaian students it can be shown that preferences for contract compliance are reference-dependent. The study explores how misjudgement of performance affects contract compliance in a contracting game with buyers and sellers. We find evidence for reference-dependent behavior: overestimators breach more compared to underestimators and non-biased sellers. The effect of overestimation on contract compliance is conditional on loss aversion, but only holds in non-deterministic environments. The effect persists when controlling for individual contract offers and performance. We manipulate subjects biased expectations in an experimental treatment which in turn increases breaching, demonstrating that reported effects are causal. The results are of a particular interest for the area of contract farming in developing countries. Policies that aim at integrating farmers into value chains with novel production techniques via contract farming have to be very considerate not to raise unrealistic expectations when promoting market outlets or production techniques. Policies that help shaping accurate information about performance and benefits is key to avoid disappointment and opportunistic behaviour that may result from it. Overall, the dissertation shows the importance of taking the behavioral perspective into account when making policies related to contract
dc.contributor.coRefereeBoztug, Yasemin Prof. Dr.
dc.contributor.thirdRefereeRau, Holger A. Prof. Dr.
dc.subject.engcontract farmingde
dc.subject.engcontract choicede
dc.subject.engcontract compliancede
dc.subject.englab-in-the-field experimentde
dc.subject.engdiscrete choice experimentde
dc.subject.engreference-dependent preferencesde
dc.subject.engdeveloping countriesde
dc.affiliation.instituteFakultät für Agrarwissenschaftende
dc.subject.gokfullLand- und Forstwirtschaft (PPN621302791)de

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