Date of Award

8-2018

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Agricultural Economics

Committee Chair

Juan Pablo Sesmero

Committee Member 1

Steven Yu-Ping Wu

Committee Member 2

Michael E. Wetzstein

Committee Member 3

Benjamin Gramig

Abstract

This dissertation contains three essays exploring how contractual form endogenously responds to uncertainty and irreversibility within a market for specialized agricultural products. It additionally explores the impact that this resulting contractual form has on rent and return distribution along the vertical supply chain. I accomplish this using a novel framework that meshes complete contracting and real options analysis. The first essay explores how equilibrium contract structure between an incumbent buyer and a seller considering entry into production of a specialized agricultural product endogenously responds to uncertainty and irreversibility. Results suggest that contract structure is sensitive to both the level and source of volatility. Additionally, the buyer can more effectively respond to some sources of volatility than others. The second essay relaxes the assumption of an incumbent buyer and examines how the equilibrium contract structure endogenously changes under varying levels of uncertainty and irreversibility when both the buyer and seller are considering entry. The third essay uses the previously mentioned framework to examine cost effectives of existing subsidies aimed at developing the cellulosic biofuel industry.

Comparing results from essay’s one and two showcases that contracts offered to seller’s considering production of a specialized agricultural product will vary substantially depending on whether the buying firm offering it is an incumbent or considering entry itself. Incumbent firms have a strategic advantage in being able to offer a contract that transfers a greater amount of risk to themselves while lowering a seller’s premium on entry. Results from essay three indicate that current subsidies designed to develop the cellulosic biofuel industry are not cost effective in their current form and that government resources could be used more efficiently through either establishment subsidies or yearly fixed payments to participants. Additionally, subsidies paid to the plant are generally more effective at inducing entry than payments to the seller.

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