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The role of product differentiation for contract choice in the agro-food sector
- Jang, Jongick, Olson, Frayne
- European review of agricultural economics 2010 v.37 no.2 pp. 251-273
- assets, issues and policy, markets, sorting, United States
- This research examines the recent growth of contract use in the USA and European agro-food sector where asset specificity is not a dominant concern and secondary markets exist. It sheds light on the neglected capabilities of a contract to transmit buyer-specific information, obtain secondary information and price uncertain costs of buyer-specific product attributes when compared with alternative spot markets. It proposes that the value of a contract's capabilities increases with a processor's or retailer's demand for buyer-specific input attributes which require unique production practices and cannot be realised by after-harvest sorting. The implications for policy and contract design are also discussed.