Hostname: page-component-cd9895bd7-gvvz8 Total loading time: 0 Render date: 2024-12-26T11:55:44.911Z Has data issue: false hasContentIssue false
  • English
  • Français

Tournament Mechanism in Wine-Grape Contracts: Evidence from a French Wine Cooperative*

Published online by Cambridge University Press:  16 December 2014

M'hand Fares  and
Luis Orozco
M'hand Fares
Affiliation:
French National Institute for Agricultural Research (INRA), Unité Mixte de Recherche Agroécologie-Innovations-Territoires (UMR 1248 AGIR); e-mail: [email protected].
Luis Orozco*
Affiliation:
University of Toulouse, Laboratoire d’Étude et de Recherche sur l’Économie, les Politiques et les Systémes sociaux (EA 4212 LEREPS), Manufacture de Tabacs, 21, allée de Brienne, 31042 Toulouse, France
*
(corresponding author). e-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This article analyzes the contractual relationship between a wine cooperative (winery) and its member (growers). This relationship is plagued by moral hazard and adverse selection problems in grape quality. Indeed, growers can be opportunistic since the cooperative is unable to observe: (1) their effort level due to imperfect monitoring technology; and (2) their productive abilities (types) due to adverse selection. Because the growers' vineyard practices and efforts are one of the main determinants of grape quality, the cooperative implements an incentive compensation system to induce growers to make the maximum effort toward the achievement of quality. This compensation scheme is similar to that in tournaments (Green and Stokey, 1983; Knoeber, 1989; Lazear and Rosen, 1981; Prendergast, 1999). In our case, the cooperative promotes competition between growers by offering a promotion to a higher-quality contract, while, at the same time, organizing the contest by creating homogeneous groups of growers using a menu of contracts and monitoring through regular visits to the vineyard. Using a database of 1,219 contracts, we test the effect of: (1) the cooperative's tournament compensation scheme; (2) the menu of contracts and monitoring mechanism. The results of our econometric estimations provide some confirmation of both effects. (JEL classifications: L14, D82, Q13)

Keywords

cooperativequalitytournamentwine grape supply contracts
Type
Articles
Information
Journal of Wine Economics , Volume 9 , Issue 3 , December 2014 , pp. 320 - 345
Copyright
Copyright © American Association of Wine Economists 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

This research was funded by the French Government Fund for Research (FUI) and the Midi Pyrénées Region in the Geowine project (www.geowine.net). The authors are grateful to Michel Gay (EI Purpan), Olivier Bourdet-Pees and Laurent Seris (Plaimont Producteurs) for making the data available. They also thank Jason Franken, an anonymous reviewer, and participants in the sixth Annual Meeting of the American Association of Wine Economists in Princeton for their helpful comments. The analysis and comments made here are, however, solely the responsibility of the authors.

References

Alchian, A.A., and Demsetz, H. (1972). Production, information costs, and economic organization. American Economic Review, 62(5), 777–795.Google Scholar
Alston, J.M., Fuller, K., Lapsley, J., and Soleas, G. (2011). Too much of a good thing? Causes and consequences of increases in sugar content of California wine grapes. Journal of Wine Economics, 6(2), 135–159.CrossRefGoogle Scholar
Ashenfelter, O. (2008). Predicting the quality and prices of Bordeaux wine. Economic Journal, 118(529), F174–F184.Google Scholar
Ashenfelter, O., and Storchmann, K. (2010). Using hedonic models of solar radiation and weather to assess the economic effect of climate change: the case of Mosel valley vineyards. Review of Economics and Statistics, 92(2), 333–349.Google Scholar
Bhattacharya, S., and Guasch, J.L. (1988). Heterogeneity, tournaments, and hierarchies. Journal of Political Economy, 96(4), 867–881.Google Scholar
Bull, C., Schotter, A., and Weigelt, K. (1987). Tournaments and piece rates: An experimental study. Journal of Political Economy, 95(1), 1–33.CrossRefGoogle Scholar
Chiffoleau, Y., et al. (2007). Networks, innovation and performance: Evidence from a cluster of wine co-operatives. In Karantinis, N.J. (Ed.), Vertical Markets and Cooperative Hierarchies. Copenhagen: Springer, 37–62.Google Scholar
Clark, D.J., and Riis, C. (2007). Contingent payments in selection contests. Review of Economic Design, 11(2), 125–137.Google Scholar
Ehrenberg, R.G., and Bognanno, M.L. (1990). Do tournaments have incentive effects? Journal of Political Economy, 98(6), 1307–1324.CrossRefGoogle Scholar
Eriksson, T. (1999). Executive compensation and tournament theory: empirical tests on Danish data. Journal of Labor Economics, 17(2), 262–280.Google Scholar
Eriksson, T., Teyssier, S. and Villeval, M.-C. (2009). Self-selection and the efficiency of tournaments. Economic Inquiry, 47(3), 530–548.CrossRefGoogle Scholar
Fares, M. (2009). Brokers as experts in the French wine industry. Journal of Wine Economics, 4(1), 1–14.CrossRefGoogle Scholar
Fraser, I. (2005). Microeconometric analysis of wine grape supply contracts in Australia. Australian Journal of Agricultural and Resource Economics, 49(1), 23–46.Google Scholar
Galliano, D., and Orozco, L. (2011). The determinants of electronic traceability adoption: A firm-level analysis of French agribusiness. Agribusiness, 27(3), 379–397.CrossRefGoogle Scholar
Gaucher, S., Soler, L.-G., and Tanguy, H. (2002). Incitation à la qualité dans la relation vignoble-négoce. Cahiers d’économie et sociologie rurales, (62), 8–40.Google Scholar
Gay, M. (2010). Geowine WP 1 – Organisation de la base de données géographiques. Note d'avancement du travail. Ecole d'ingenieurs de Purpan.Google Scholar
Gergaud, O., and Ginsburgh, V. (2008). Natural endowments, production technologies and the quality of wines in Bordeaux. Does terroir matter? Economic Journal, 118(529), F142–F157.CrossRefGoogle Scholar
Gibbons, R. (1987). Piece-rate incentive schemes. Journal of Labor Economics, 5(4), 413–429.Google Scholar
Goodhue, R.E., Helen, D.M., Lee, H., and Sumner, D.A. (2003). Contracts and quality in the California winegrape industry. Review of Industrial Organization, 23(3/4), 267–282.Google Scholar
Green, J.R., and Stokey, N.L. (1983). A comparison of tournaments and contracts. Journal of Political Economy, 91(3), 349–364.CrossRefGoogle Scholar
Gurtler, O., and Harbring, C. (2010). Feedback in tournaments under commitment problems: Experimental evidence. Journal of Economics and Management Strategy, 19(3), 771–810.Google Scholar
Heckman, J.J. (1979). Sample selection bias as a specification error. Econometrica, 47(1), 153–161.CrossRefGoogle Scholar
Heutel, G. (2009). Testing implications of a tournament model of school district salary schedules. Economics of Education Review, 28(1), 143–151.Google Scholar
Holmstrom, B. (1999). Managerial Incentive Problems: A Dynamic Perspective. Review of Economic Studies, 66(1), 169–82.Google Scholar
INAO. (2010). Fiche produit “Saint Mont.” Institut National de l'Origine et de la Qualité, http://www.inao.gouv.fr.Google Scholar
Jensen, M.C., and Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.Google Scholar
Knoeber, C.R. (1989). A real game of chicken: Contracts, tournaments, and the production of broilers. Journal of Law, Economics & Organization, 5(2), 271Google Scholar
Knoeber, C.R., and Thurman, W.N. (1994). Testing the theory of tournaments: An empirical analysis of broiler production. Journal of Labor Economics, 12(2), 155–179.CrossRefGoogle Scholar
Lazear, E.P., and Rosen, S. (1981). Rank-order tournaments as optimum labor contracts. Journal of Political Economy, 89(5), 841–864.CrossRefGoogle Scholar
Levy, A., and Vukina, T. (2004). The league composition effect in tournaments with heterogeneous players: An empirical analysis of broiler contracts. Journal of Labor Economics, 22(2), 353–377.Google Scholar
Main, B., O'Reilly, C., and Wade, J. (1993). Top executive pay: Tournament or teamwork. Journal of Labor Economics, 11(4), 606–628.Google Scholar
Montaigne, E., Rousset, S., and Traversac, J.-B. (2007). Quelles perspectives pour les contrats en raisin entre production et négoce? In Coudrec, J.-P., Hannin, H., d'Hauteville, F., and Montaigne, E. (Ed.), Bacchus 2008, Enjeux, stratégies et pratiques dans la filière vitivinicole. Dunod, 85–104.Google Scholar
Nalebuff, B., and Stiglitz, J. (1983). Prizes and incentives: Towards a general theory of compensation and competition. Bell Journal of Economics, 14(1), 21–43.Google Scholar
Pennerstorfer, D., and Weiss, C.R. (2013). Product quality in the agri-food chain: Do cooperatives offer high-quality wine? European Review of Agricultural Economics, 40(1), 143–162.Google Scholar
Prendergast, C. (1999). The provision of incentives in firms. Journal of Economic Literature, 37(1), 7–63.CrossRefGoogle Scholar
Riis, C. (2010). Efficient contests. Journal of Economics & Management Strategy, 19(3), 643–665.Google Scholar
Rosen, S. (1982). Authority, control, and the distribution of earnings. Bell Journal of Economics, 13(2), 311–323.CrossRefGoogle Scholar
Sappington, D.E.M. (1991). Incentives in principal-agent relationships. Journal of Economic Perspectives, 5(2), 45–66.Google Scholar
Tsoulouhas, T. (2010). Hybrid cardinal tournaments. Economics Bulletin, 30(3), 2279–2288.Google Scholar
Tsoulouhas, T. (2013). Do tournaments solve the adverse selection problem? (October 16, 2013). Available at SSRN: http://ssrn.com/abstract=2341925/Google Scholar
Tsoulouhas, T., and Vukina, T. (2001). Regulating broiler contracts: Tournaments versus fixed performance standards. American Journal of Agricultural Economics, 83(4), 1062–1073.Google Scholar
Tsoulouhas, T., and Marinakis, K. (2007). Tournaments with ex-post heterogeneous agents. Economics Bulletin, 4(41), 1–9.Google Scholar
Tsoulouhas, T., Knoeber, C., and Agrawal, A. (2007). Contest to become CEO: Incentives, selection and handicaps. Economic Theory, 30(2), 195–221.Google Scholar
Vandegrift, D., and Yavas, A. (2010). An experimental test of sabotage in tournaments. Journal of Institutional and Theoretical Economics, 166(2), 259–285.CrossRefGoogle Scholar
Wang, Y., and Jaenicke, E. (2005). Pooling, separating, and cream-skimming in relative-performance contracts. In American Agricultural Economics Association Annual Meeting. Providence, Rhode Island, July 24–27.Google Scholar