Producer price risk and quality measurement

Risk-averse farmers in the produce industry grow a product whose market pri ce is often quite unpredictable. Shippers or other intermediaries shield th e farmer from much of this price risk; however, actual contracts between gr owers and shippers vary considerably across commodities in the residual pri ce risk growers face. We hypothesize that imperfect quality measurement res ults in a moral hazard problem, and that price provides additional informat ion regarding duality. As a consequence, an efficient contract does not shi eld growers from all idiosyncratic price risk. We examine this hypothesis f or the case of fresh-market tomatoes.