Agricultural complementarities and coordination: Modeling value differentiation and production contracting

The coming revolution in American agriculture is heralded by participants and observers as a structural transformation affecting all levels of the food chain. This process has been recognized and much discussed by agricultural economists, but mostly addressed through sweeping generalizations rather than through fundamental analysis. While it is generally agreed that the changes in agriculture will affect all levels of the food chain and the relationships among them and with consumers, the nature, scope, progression, and implications of the structural change process are all still items of debate. Some subsectors, particularly broilers, fruits and vegetables, appear to have already transformed their production chains, while the transformation for other products, such as feed grains, is primarily a matter of speculation at this point in time.;Tracing from the work in Davis and Coldberg (1957), there have been numerous studies identifying the need to evaluate the entire production chain in order to address changes in the system. This dissertation seeks to tie the descriptive work examining the food chain as a whole to modern economic analysis. The nature of the changes in agriculture require a redesigning of the models used to evaluate agricultural issues. Such a redesign requires an understanding of both the changes in agriculture and the necessary economic tools.;This dissertation utilizes the theory of complementarities to develop an analytical model of the agricultural transformation process in Chapter 2, and develops new results in contract theory to explain the forces underlying the design of agricultural production contracts, a particular type of vertical relationship at a particular level of the food production chain, in Chapter 3.;Chapter 4 examines hypotheses derived from the theoretical frameworks in Chapter 2 and Chapter 3. Two methodologies are used: a case study of fresh and processed tomato contracts and an econometric analysis of broiler contract outcomes. The theory is found to be robust with regard to both methodology and industry. The dissertation concludes with a discussion of the implications of these findings for agriculture, agricultural policy and future research in Chapter 5.