Contract enforcement when monitoring is costly: Cheating in the government crop support programs
Abstract
A contract, by defining and restricting rights, places explicit constraints on the actions of contracting parties. Logically, these constraints will have no effect on wealth-maximizing behavior unless there are provisions made to monitor and enforce contract stipulations. Even then, the constraint of contract may not be perfect; the wealth-maximizing agent still has some incentive to "cheat" on contract margins where it is costly to measure and enforce compliance. This dissertation attempts to extend theoretical and empirical understanding of this contract problem through an investigation of the government agricultural price-support contract. The theory predicts and the empirical tests confirm that some farmers have been violating the provisions of the government support program. The model identifies potential gains and costs to farmers from cheating and predicts (1) the type of farmer more likely to cheat and (2) the types of behavioral changes likely to be observed. Empirical testing is conducted using data obtained from the United States Department of Agriculture.
Degree
Ph.D.
Advisors
Umbeck, Purdue University.
Subject Area
Agricultural economics
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