Producer Penalties and Bonuses

Producer penalties and bonuses can help reduce the incidence of side-selling and better align farmers' incentives with purchasers'.   Bonuses can help ensure that farmers take the necessary measurements to produce the quality charachteristics often present in contract farming arrangements. A randomized controlled experiement with milk producers in Vietnam showed that the presence of penalties and bonuses drove farmers to higher input use which resulted in higher quality milk.

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Authors: 

Christoph Saenger, Matin Qaim, and Angelino Viceisza