Contracting in the wine supply chain with bilateral moral hazard, residual claimancy and multi-tasking

Abstract

This paper takes a quasi-case-study approach to stylised wine industry facts to assess predictions about the optimal sharing rule from a principalagent model with residual claimancy. An optimal sharing contract is developed between a grape grower and a winery, when a risk-averse grower allocates efforts among multiple activities that differ in measurability, while double-sided moral hazard is assumed to be present. Several comparative static results regarding the Pareto optimal share are in line with certain production practices and properties of observed contracts that are found in markets where residual claimancy is used, namely in Australia, California, New Zealand and France. © Oxford University Press and Foundation for the European Review of Agricultural Economics 2011; all rights reserved. For permissions, please email journals.permissionsoup.com2011 © © Oxford University Press and Foundation for the European Review of Agricultural Economics 2011; all rights reserved. For permissions, please email journals.permissionsoup.com.