RT Journal Article
SR 00
A1 Orozco Noguera, Luis
A1 Fares, M'hand
T1 Tournament Mechanism in the Wine-Grape Contracts:  Evidence from a French Wine Cooperative
JF Journal of Wine Economics
YR 2014
FD 2014
VO 9
IS 3
SP 320
OP 345
K1 Wine grape supply contracts
K1 quality
K1 tournament
K1 cooperative
AB 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. (JEL classification: L14, D82, Q13)
LK https://publications.ut-capitole.fr/id/eprint/16334/