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Lookup NU author(s): Dr Alexandros Karakostas, Dr Diogo Monjardino De Souza MonteiroORCiD, Cosmos Adjei
This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).
© 2025 The Author(s). Journal of Agricultural Economics published by John Wiley & Sons Ltd on behalf of Agricultural Economics Society. Weak enforcement and power imbalances in developing-country contract farming can create opportunities for both farmers and processors to renege on agreements; a situation known as double moral hazard (DMH). Drawing on a principal–agent framework, we use a controlled laboratory experiment to compare DMH, where processors can reduce agreed-upon prices ex post and farmers can side-sell, to single moral hazard (SMH), where only farmers can deviate. Contrary to the standard theoretical prediction of identical outcomes under full rationality, allowing processors to lower prices ex post leads to significantly lower initial price offers, greater side-selling and reduced contract acceptance; ultimately harming farmers' earnings. By contrast, SMH produces higher prices and a Pareto improvement in welfare. These findings highlight how buyer opportunism, exacerbated by weak legal systems and asymmetrical bargaining power, can erode smallholders' livelihoods in practice. We conclude that policies and contract designs aimed at limiting buyer discretion can mitigate double moral hazard and enhance the stability and equity of contract farming arrangements.
Author(s): Karakostas A, De Souza Monteiro DM, Adjei C
Publication type: Article
Publication status: Published
Journal: Journal of Agricultural Economics
Year: 2025
Volume: 76
Issue: 3
Pages: 640-650
Print publication date: 03/09/2025
Online publication date: 08/07/2025
Acceptance date: 25/06/2025
Date deposited: 21/07/2025
ISSN (print): 0021-857X
ISSN (electronic): 1477-9552
Publisher: John Wiley and Sons Inc.
URL: https://doi.org/10.1111/1477-9552.12646
DOI: 10.1111/1477-9552.12646
Data Access Statement: The data that support the findings of this study are available from the corresponding author upon reasonable request.
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