A New Institutional Economics Approach to Contracts and Cooperatives

This paper was prepared as an invited Principal Paper for the 2001 annual meeting of the American Agricultural Economics Association. Forthcoming in American Journal of Agricultural Economics Vol. 83, No. 5, 2001.Includes bibliographical references.Our purpose in this paper is to highlight the role of organizational structure and incentives in the design of contracts between buyers and sellers of agricultural products. In particular, we consider how differences between investor-owned (IOF) and producer-oriented (POF) firms, and differences between alternate types of POFs, may affect the types of contract terms those respective organizations are likely to prefer in their contracts with agricultural producers. New institutional economics theories of contracting, agency and property rights allocation suggest that cooperative contractors may be able to design contracts that enhance economic efficiency that IOFs cannot easily replicate