Contract Farming and Rural Transformation: Evidence from a Field Experiment in Benin

Aminou Arouna (Africa Rice Center)
Jeffrey Michler (University of Arizona)
Jourdain Lokossou (ICRISAT)

Abstract : In recent decades contract farming has emerged as a popular mechanism to encourage vertical coordination in developing country agriculture. The goal of such coordination is to better integrate smallholder farmers into the modern agricultural food system, fostering rural transformation. We use panel data from a randomized control trial to quantify the impact of different contract attributes on rural transformation and welfare of smallholder rice farmers in Benin. We vary the terms of contract, with some farmers being offered a contract that only guarantees a price, while other contracts add extension training or input loans. While all three types of contracts had positive and significant effects, we find that contracts which only included an agreement on price had nearly as large of an impact as did contracts with additional attributes. This suggests that once price uncertainty is resolved, farmers are able to address other constraints on their own.

Multidimensionality and Complexity in Scoring Rule Auctions: Experimental Evidence

Riccardo Camboni (University of Padova)
Luca Corazzini (University of Venezia)
Stefano Galavotti (University of Padova)
Paola Valbonesi (University of Padova)

Abstract : We experimentally investigate the problem of a procurer who needs to procure a good or service for which both price and quality matter. To this end, we compare two unidimensional treatments where one element (price or quality) is fixed by the auctioneer and sellers compete on the other dimension, with three bi-dimensional treatments where sellers submit both a price and a quality offer and the contract is awarded on the basis of a "score" that (linearly) combines the two offers. Our results show that, differently from the unidimensional treatments, the bi-dimensional treatments significantly underperform relative to their theoretical predictions, both in terms of efficiency and in terms of procurer's surplus. We argue that this might be related to the higher complexity of the bi-dimensional treatments. To corroborate this intuition, we fit a structural Quantal Response Equilibrium to our data: we obtain very similar estimates for the risk aversion parameter across treatments; on the other hand, the rationality parameter, which measures how close are observed bids to the payoff-maximizing ones, is lower in the bi-dimensional treatments, suggesting that adding a dimension to the strategic decision problem faced by bidders increases the likelihood that they play suboptimally, thus greatly reducing the theoretical superiority of more complex mechanisms.

A Salesforce-driven Model of Consumer Choice

Bicheng Yang (University of British Columbia)
Tat Chan (Washington University in St. Louis)
Raphael Thomadsen (Washington University in St. Louis)

Abstract : This paper studies how salespeople affect the choices of which products consumers choose, and from that, how a firm should set optimal commissions as a function of the appeal, substitutability and profit margins of different products. We also examine whether firms are better off promoting products through sales incentives or price discounts. To achieve these goals, we develop a salesforce-driven consumer choice model to study how performance-based commissions incentivize a salesperson’s service effort toward heterogeneous, substitutable products carried by a firm. The model treats the selling process as a joint decision by the salesperson and the consumer. It allows the salesperson’s efforts to vary across different transactions depending on the unique preferences of each consumer, and incorporates the effects of commissions and other marketing mix elements on the selling outcome in a unified framework. We estimate the model using data from a car dealership. We find that the optimal commissions should be lower for popular items and for items that are closer substitutes with other products. We also find that for the car industry we study, the cost of selling more cars using sales incentives is cheaper than the cost of selling the same number of cars using price discounts.