Principal-Agent Governance Mechanism in an Emerging Biofuels Supply Chain in USA Report as inadecuate

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This article analyzes the incentives and compensation problems faced by cellulosic ethanol producer and logging firms and the consequent impact on the organization of the wood based cellulosic ethanol industry in the US. The success of this relationship is central to setting up the biofuel industry in Michigan and in the US at large. The study utilizes the theoretical framework of institutional economics and uses case methodology to discuss potential problems arising from information asymmetry. Theoretical results indicate that the specification contract under the principal-agent framework is of limited utility due to’ metering’ problem when the principal contracts with multiple agents for the supply of feedstock. Alternative arrangements including joint ventures have the potential to provide close to first best solutions.

Keywords: Cellulosic ethanol ; Contracts ; Asymmetric information ; Moral hazard ; Adverse selection ; Supply chain

Subject(s): Farm Management

Health Economics and Policy

Issue Date: 2013-08

Publication Type: Journal Article

DOI and Other Identifiers: ISSN(P): 2304-1455 (Other)

ISSN(E): 2224-4433 (Other)

PURL Identifier: Published in: Asian Journal of Agriculture and Rural Development, Volume 03, Number 08 Page range: 532-542

Total Pages: 11

Series Statement: 2-281-AJARD, Vol. 3(8)2013-532-542

Record appears in: Asian Economic and Social Society (AESS) > Asian Journal of Agriculture and Rural Development

Author: Pandey, Vivek ; Shanoyan, Aleksan ; Peterson, H. Christopher ; Ross, R. Brent


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