The name is absent

averse or because he faces higher variance in his income. Hence, these latter two
parameters can be jointly identified, ρσ_s² , as both act on the producer’s risk premium in
a similar way.

For the purposes of the simulation, we consider an identical number of processors
and growers, varying from 1 to 40, in steps of 5. Likewise, we assume that ρσ_s² to take
values 0, 0.000001, 0.00001 and 0.0001⁸. Still larger values for ρσ_s² do not
substantially affect the results of simulation exercise reported in this section. Using the
equations explained in the models, we calculate the grower’s effort in quantity in each
contractual mechanism for each of possible combinations, which is illustrated in Figure
1. This process has been repeated for the grower’s effort in quality and the total certain

equivalent (see figures 2 and 3, respectively).

ρσ²=0

ρ σ² =0.00001

♦----♦ Incentive Contract Market

Figure 1. Comparing grower’s effort in quantity with incentive contract and spot market

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