Organization Department of Business Economics, University of Zaragoza, Zaragoza, Spain

Year 2009

This paper attempts to develop a consistent theory for the choice of performance contracts in agriculture by analyzing the trade-off between quantity and quality and the presence of competence and uncertainty on the basis of the expected utility theory. This theory is able to explain many contract-related issues, such as why the performance contract can be optimal even providing lesser quantity and quality than the spot market and why a trade-off between processors' and consumer' interests about mechanism choice can exist, utilizing a simulation exercise.