Abe Initiative Seminar
Friday June 29, 2018, 16:30-18:00, E020, Graduate School of Agriculture, Kyoto University
Title: Contract Farming as Partial InsuranceSpeaker: Prof. Marc F. Bellemare, Department of Applied Economics at the University of Minnesota (co-author with Yu Na Lee, and Lindsey K. Novak)
Discussant: Dr. Satoru Shimokawa, School of Political Science and Economics, Waseda University
Abstract: A core result of contract theory is that contracts can help transfer risk from one party to another, thereby insuring the former. We test this prediction in the context of contract farming, the economic institution wherein a processing firm contracts the production of a commodity to a grower. Specifically, we look at whether participation in contract farming is associated with lower levels of income variability–our proxy for risk–in a sample of 1,200 households in Madagascar. Relying on a framed field experiment aimed at eliciting respondent marginal utility of participation in contract farming for identification in a selection-on-observables design, we find that participation in contract farming is associated with a 0.2-standard deviation decrease in income variability. Looking at the mechanism behind this finding, we find strong support for the hypothesis that fixed-price contracts explain the reduction in income variability associated with contract farming. Because the assumption that makes our selection-on-observables design possible also satisfies the conditional independence assumption, we estimate propensity score matching models, the results of which show that our core results are robust and that participation in contract farming would have greater beneficial effects for those households that do not participate than for those who do. Our findings thus show that contract farming can help growers partially insure against income risk via contracts that transfer price risk from growers to processors.
Marc F. Bellemare is an associate professor in the Department of Applied Economics at the University of Minnesota, where he also directs the Center for International Food and Agricultural Policy. He currently serves as one of two co-editors of Food Policy and as a member of the editorial board of the Agricultural and Resource Economics Review and of the Review of Agricultural, Food, and Environmental Studies. In the past, he has also served as associate editor of the American Journal of Agricultural Economics. His research lies at the intersection of agricultural economics, food policy, and international development. A few specific areas in which he has been conducting research include contract farming and agricultural value chains, risk and uncertainty, food prices, market access, and land markets.
Contact Person: Chieko Umetsu, E-mail: firstname.lastname@example.org
Division of Natural Resource Economics, Graduate School of Agriculture