Quality Measurement and Contract Design: Lessons from the North American Sugarbeet Industry

We examine contracts used in the North American sugarbeet industry. Though quite similar in many respects, the contracts we study vary across processing firms in the set of quality measures used to condition contract payments to growers. This is somewhat surprising given the homogeneous nature of the processors’ finished product (refined sugar). It seems unlikely that processors differ significantly in how they value the various attributes of a sugarbeet, and this is perhaps the most natural reason to expect differences in the structure of quality incentives across processors. Previous attempts to explain the observed variation in sugarbeet contracts have focused on differences in organizational form across firms. In this paper, we provide an alternative explanation that relies on variation across production regions in growers’ ability to ‘control’ the relevant measures of sugarbeet quality.