Networks, Relational Contracts and Adaptation in the Agri-Food Industry
Special Symposium - Innovations in Food Technology (LMC Congress)
Innovations in Food Technology - Poster Session (LMC/Food - P1)
Keywords: Networks, Relational contracts, Adaptation theory, Agri-food Industry
A large number of attributes, actions and tasks that characterize economic transactions are usually impossible or too costly to specify in a contract. Instead, economic agents, farmers, processors, merchants, retailers, rely on trust, reputation, and reciprocal relations. These are usually referred to as networks, hybrids, or relational contracts. The agri-food industry is full of such examples: quality of food products, food safety, innovation and R&D investments, to name just a few. We use adaptation theory to model relational contracts between firms. Firms can write contracts on decision rights but not on actual decisions. This necessitates that the contracting parties must decide on who will have the decision rights as well as side payments in order to provide incentives for efficient decisions. The result is various situations of which vertical integration is only one case. Relational contracts, strategic alliances, and networks are common outcomes in this framework. In this way, we are able to characterize various governance structures in the agri-food industry
