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

M'Hand Fares () and Luis Orozco ()
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M'Hand Fares: AGIR - AGroécologie, Innovations, teRritoires - INRA - Institut National de la Recherche Agronomique - Toulouse INP - Institut National Polytechnique (Toulouse) - UT - Université de Toulouse

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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: (i) their effort level due to imperfect monitoring technology; (ii) 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 provide the maximum effort towards quality. This compensation scheme is similar to that in tournaments (Lazear and Rosen, 1981; Green and Stokey, 1983; Knoeber, 1989; Prendergast, 1999). In our case, the cooperative promotes competition between growers by offering a promotion, while, at the same time, organizing the contest by creating homogenous groups of growers using a menu of contracts and monitoring through regular visits to the vineyard. Using a database of 1219 contracts, we test the effect of: (i) the cooperative's tournament compensation scheme; (ii) the menu of contracts and monitoring mechanism. The results of our econometric estimations provide some confirmation of both effects.

Keywords: Wine grape; supply contracts; quality; tournament; cooperative (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-agr, nep-ger and nep-hrm
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Published in Journal of Wine Economics, 2014, 9 (3), pp.320-345. ⟨10.1017/jwe.2014.29⟩

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Journal Article: Tournament Mechanism in Wine-Grape Contracts: Evidence from a French Wine Cooperative* (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01093245

DOI: 10.1017/jwe.2014.29

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