Integrator contracts with many agents and bankruptcy

This article analyzes optimal livestock production contracts between an int egrator company and many independent growers in three similar industries: b roiler, turkey, and swine. The analysis provides an explanation for the sim ultaneous existence of distinct incentive schemes in these industries by ex amining the effects of bankruptcy. The key factors are shown to be the outp ut price volatility and the firm size. With large companies dominating the broiler industry, a small price volatility facilitates the use of two-part piece rate tournaments. By contrast, given the prevalence of smaller compan ies in the swine industry, a larger price volatility generates a bankruptcy risk which renders the use of tournaments infeasible. Given the combinatio n of medium-size companies in the turkey industry, an intermediate price vo latility produces a mixed result where tournaments and fixed performance st andards exist simultaneously.