Contracts in cattle production in Ghana : their nature, and effects on input use and technical efficiency

Abstract

Contracts provide incentives for the supply of inputs under various contractual arrangements. Contracts in cattle production are therefore important for the supply of inputs in the production process. Yet, not much is known about the nature and drivers of these contracts. Nor do we know the effects of contracts on input use and efficiency in cattle production. This thesis investigates the nature and drivers of contracts and their influence on input use and efficiency. We use mainly empirical approaches to address the issues raised. In Chapter 1, we outline the specific questions the thesis seeks to answer and provide an overview of the respective methodologies we employ in answering the questions. Chapter 2 investigates the nature and drivers of contracts in cattle production in Ghana. We conduct a survey to generate data for characterising the contracts based on remunerations that agents receive. We found two main contracts: cattle owner-kraal owner contracts and kraal owner-herdsman contracts. The cattle owner-kraal owner contracts comprise calves-sharing contracts, fixed-wage contracts, subsidy-only contracts, and unspecified contracts. The kraal owner-herdsman contracts comprise broadly milk payment contracts, and fixed payment in kind or cash contracts. We view unspecified contracts as implicit contracts with remuneration not specified beforehand but dependent on future production outcomes, while the other contracts are explicit with remuneration explicitly specified. We learn that variations in both contracts can be explained using the transaction cost and principal agent theories. We view implicit contracts as serving the purpose of mutual insurance. Thus, in Chapter 3, we investigate factors that influence the choice of implicit versus explicit contracts. To do this, we formulate a model that generates hypotheses regarding the influence of trust, production loss, and risk aversion on implicit-contract choice. We use a combination of experimental and survey data to test the hypotheses. We find support for our theoretical predictions that trust, production loss, and risk aversion are positively correlated with a preference for implicit contracts. In Chapter 4, we study the influence of contracts on input use. We develop a model which shows that supplementary feed is short-term productivity-enhancing, while veterinary care inputs are long-term productivity-enhancing. We model the cattle owner and kraal owner decisions to use inputs under various contract types as a Stackelberg game. We test the resulting hypotheses that supplementary feed occurs only under fixed-wage contracts and that the use of veterinary care inputs is the same under fixed-wage contracts and calves-sharing contracts. Employing primary data, we show that the hypotheses are generally supported by the data. In Chapter 5, we investigate the efficiency in extensive cattle production, focusing on the influence of cattle production contracts on efficiency. We use the stochastic frontier analysis and find that on average efficiency scores are low, but have a wide spread. Nevertheless, we learn that contract type does not matter for inefficiency. On the other hand, the kraal owner’s education is positively correlated with inefficiency. We interpret this to mean that, since higher educated kraal owners have more outside options, they are likely to devote less time to monitoring activities in the kraal, thus leading to low efficiency. Chapter 6 provides brief answers to the research questions. Then the findings are put into broader perspective in terms of current scientific debates. In this regard, the thesis contributes to various strands of the literature. These include the nature of contracts and explanations for them, implicit contracts and uncertainty, incentive effects of contracts, and contracts and inefficiency. Also, the thesis contributes to the literature on institutions and development. We view cattle production contracts as informal institutions which impact productivity in the livestock sub-sector, and therefore the agricultural sector and economy at large. The policy implications are also discussed. The limitations of the study are identified, and suggestions for future research made.