Incentives and moral hazard: plot level productivity of factory-operated and outgrower-operated sugarcane production in Ethiopia
Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
We investigate the unique contractual arrangement between a large Ethiopian sugar factory and its adjacent outgrower associations. The only significant difference between the sugarcane production on the factory-operated sugarcane plantation and on the outgrower-operated plots is the remuneration system and thus, the incentives to the workers. We compare the productivity of these two production schemes using a cross-sectional plot-level data set. As sugarcane production depends on various exogenous factors that are measured as categorical variables (e.g., soil type, cane variety, etc.), we estimate the production function by a nonparametric kernel regression method that takes into account both continuous and categorical explanatory variables without assuming a functional form and without imposing restrictions on interactions between the explanatory variables. Our results show that outgrower-operated plots have-ceteris paribus-a statistically and economically significantly higher productivity than factory-operated plots, which can be explained by outgrowers having stronger incentives to put more effort into their work than the employees of the sugar factory.
|Tidsskrift||Agricultural Economics (United Kingdom)|
|Status||Udgivet - 2017|