Do Farming Scale and Mechanization Affect Moral Hazard in Rice Harvest Outsourcing Service in China?

Abstract

The purchase of agricultural machinery outsourcing services creates a principal–agent relationship between farmers and service providers, where farmers are principals, and service providers are agents. Inconsistent goals and information asymmetry between two parties may induce moral hazard on the part of the agent. Based on survey data from 1106 rice farmers in China, this study uses Logit models to estimate the effect of agricultural machinery outsourcing services on harvesting operators’ work attitudes. The results are as follows. In general, work attitudes of outsourcing service operators are not as serious as those of farmers. After controlling for other factors, we find that purchasing harvest outsourcing services negatively affects the operators’ work attitudes. The results of the grouping estimation indicate that for large-scale farms, using combine harvesters increases the probability of agents displaying serious work attitudes. Propensity score matching analysis also proves the robustness of service providers’ less serious work attitudes. This study provides empirical evidence that moral hazard exists in agricultural machinery outsourcing services. Policies such as standardization of the outsourcing service market, scale management, and use of combine harvesters should be adopted to mitigate moral hazard.