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Tournament Mechanism in Wine-Grape Contracts: Evidence from a French Wine Cooperative*

Published online by Cambridge University Press:  16 December 2014

M'hand Fares  and
Luis Orozco
M'hand Fares
Affiliation:
French National Institute for Agricultural Research (INRA), Unité Mixte de Recherche Agroécologie-Innovations-Territoires (UMR 1248 AGIR); e-mail: [email protected].
Luis Orozco*
Affiliation:
University of Toulouse, Laboratoire d’Étude et de Recherche sur l’Économie, les Politiques et les Systémes sociaux (EA 4212 LEREPS), Manufacture de Tabacs, 21, allée de Brienne, 31042 Toulouse, France
*
(corresponding author). e-mail: [email protected]
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Abstract

This article analyzes the contractual relationship between a wine cooperative (winery) and its member (growers). This relationship is plagued by moral hazard and adverse selection problems in grape quality. Indeed, growers can be opportunistic since the cooperative is unable to observe: (1) their effort level due to imperfect monitoring technology; and (2) their productive abilities (types) due to adverse selection. Because the growers' vineyard practices and efforts are one of the main determinants of grape quality, the cooperative implements an incentive compensation system to induce growers to make the maximum effort toward the achievement of quality. This compensation scheme is similar to that in tournaments (Green and Stokey, 1983; Knoeber, 1989; Lazear and Rosen, 1981; Prendergast, 1999). In our case, the cooperative promotes competition between growers by offering a promotion to a higher-quality contract, while, at the same time, organizing the contest by creating homogeneous groups of growers using a menu of contracts and monitoring through regular visits to the vineyard. Using a database of 1,219 contracts, we test the effect of: (1) the cooperative's tournament compensation scheme; (2) the menu of contracts and monitoring mechanism. The results of our econometric estimations provide some confirmation of both effects. (JEL classifications: L14, D82, Q13)

Keywords

cooperativequalitytournamentwine grape supply contracts
Type
Articles
Information
Journal of Wine Economics , Volume 9 , Issue 3 , December 2014 , pp. 320 - 345
Copyright
Copyright © American Association of Wine Economists 2014 

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Footnotes

*

This research was funded by the French Government Fund for Research (FUI) and the Midi Pyrénées Region in the Geowine project (www.geowine.net). The authors are grateful to Michel Gay (EI Purpan), Olivier Bourdet-Pees and Laurent Seris (Plaimont Producteurs) for making the data available. They also thank Jason Franken, an anonymous reviewer, and participants in the sixth Annual Meeting of the American Association of Wine Economists in Princeton for their helpful comments. The analysis and comments made here are, however, solely the responsibility of the authors.

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