Regulating broiler contracts: Tournaments versus fixed performance standards

Grower discontent with tournaments as mechanisms for settling poultry contr acts can largely be attributed to the group composition risk that tournamen ts impose on growers. This article focuses on the welfare effects of a wide ly advocated regulatory proposal to prevent integrator companies from using tournaments and replace them with schemes that compare performance to a fi xed Standard. The analysis shows that the mandatory replacement of tourname nts with fixed performance standards, absent any rules that regulate the ma gnitude of the piece rate, can decrease grower income insurance without rai sing welfare. However, replacing tournaments with fixed performance standar ds can simultaneously increase income insurance and welfare, provided that the magnitude of the piece rate is also regulated.