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Impact of Third-Party Contract Enforcement in Agricultural Markets - A Field Experiment in Vietnam

Asymmetry of information is a fundamental problem in agricultural markets. Production contracts remain incomplete if product quality attributes measured by the buying company remain unobservable for the selling farmer. Opportunistic buyers would report lower than actual output quality, negatively affecting farmers’ compensation given it is directly linked to quality. When farmers factor in the buyer’s opportunistic behavior, underinvestment may occur, negatively affecting farm productivity.

Contract Farming and Smallholder Incentives to Produce High Quality: Experimental evidence from the Vietnamese Dairy Sector

Producer penalties and bonuses can help reduce the incidence of side-selling and better align farmers' incentives with purchasers'. Bonuses can help ensure that farmers take the necessary measurements to produce the quality characteristics often present in contract farming arrangements. A randomized controlled experiment with milk producers in Vietnam showed that the presence of penalties and bonuses drove farmers to higher input use which resulted in higher quality milk.

Potential Collusion and Trust: Evidence from a Field Experiment in Vietnam

Part of the constraints facing contract farming are the lack of proper procedures for measuring quality in production. If the buyer handles quality assurance then they may have an incentive to report that production was of lower quality in order to offer a lower price. The producer knowing this, in turn will lower their expectation to the income from contact farming and be less likely to contract.

Evaluating Value Chain Interventions: A Review of Recent Evidence

This ILRI discussion paper reviews 20 value chain interventions and discusses the econometric techniques used to address the validity of findings. It explores the use of propensity score matching, instrumental variables, difference in difference, regression discontinuity, and randomized controlled trials. Qualitative and participatory methods are also examined with the idea that they may be able to better capture the complexity of value chain processes.

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