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Do Quality Incentives Matter?

  • Author(s): Alexander, Corinne
  • Goodhue, Rachael E.
  • Rausser, Gordon C.
  • et al.
Abstract

We utilize an unusual data set, involving fifteen tomato growers over four years, to analyze the impact of incentive contracts on behavior. Each grower delivers processing tomatoes under a price incentives contract and for a fixed price per ton. Our comparison of the quality of the tomatoes delivered under the two arrangements confirms that growers do respond to incentive contracts by improving tomato quality, as predicted by economic theory. The comparison is not confounded by the usual contract endogeneity and simultaneity problems, due to characteristics of the processing tomato industry and our data set.

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