A principal-agent model for evaluating the economic value of a beef traceability system: a case study with injection-site lesions control in fed cattle

Resende-Filho, Moises and Buhr, Brian (2006): A principal-agent model for evaluating the economic value of a beef traceability system: a case study with injection-site lesions control in fed cattle.

Abstract

This article investigates the economic value and the optimal expected traceback rate of success for a traceability system with a case study of injection-site lesions in fed cattle in the US. By maintaining the identity of the feedlot owners corresponding to retail beef cuts, a traceability system enables the employment of incentive mechanisms by a meat packer to overcome supply chain information asymmetry. Results of this article show that the first-best action of producers may be induced by meat packers with incentive mechanisms created with a low expected traceback rate of success. This suggests that even inexpensive traceability systems may induce appropriate actions by producers and objectives of inducing compliance by suppliers may be less costly than objectives of recall.

• Item Type: MPRA Paper
• Institution: Universidade Federal de Juiz de Fora
• Language: English
• Keywords: Information Asymmetry; Identity Preservation; Meat Traceability; Supply Chain Management
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design

References

Antle, J. M. 2001. "Economic Analysis of Food Safety. " In B. L. Gardner, and G. C. Rausser eds. Handbook of agricultural economics, Volume 1B, Marketing, distribution and consumers. Amsterdam, London and New York: Elsevier Science, North-Holland, pp. 1083-1136. Basarab, J. A. , D. Milligan, and B. E. Thorlakson. 1997. "Traceback Success Rate of an Electronic Feedlot to Slaughter Information System for Beef Cattle. " Canadian Journal of Animal Science 77:525-528. Bogetoft, P. , and H. B. Olesen. 2003. "Incentives, Information Systems, and Competition. " American Journal of Agricultural Economics 85(1):234-47. Chalfant, J. A. , J. S. James, N. Lavoie, and R. J. Sexton. 1999. "Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune Industry. " Journal of Agricultural and Resource Economics 24(1):57-79. Dee Griffin, D. 2002. “New injection-site Problem Observed in Modified Atmosphere Packaging. ” Missouri Stocker Feeder Quality Assurance Program Producer News, August, pp. 1. Dee Griffin, D. 2005. “Average Number of Injections Applied to a Typical Beef Cattle Production System.” Unpublished, Department of Veterinary and Biomedical Science, University of Nebraska- Lincoln, NE. Dexter, D.R., G.L. Cowman, J.B. Morgan, R.P. Clayton, J.D. Tatum, J.N. Sofos, G.R. Schmidt, R.D. Glock, and G.C. Smith. 1994. "Incidence of injection-site blemishes in beef top sirloin butts." Journal of Animal Science 72(4):824-7. Dubois, P. , and T. Vukina. 2004. "Grower Risk Aversion and the Cost of Moral Hazard in Livestock Production Contracts. " American Journal of Agricultural Economics 86(3):835-841. Field, T. G. , and R. E. Taylor. 2004. Beef Production Management and Decisions, 4th. ed. Upper Saddle River NJ: Prentice Hall, Inc. Gibbons, R. 1992. Game Theory for Applied Economists, Princeton NJ: Princeton University Press. Golan, E. , B. Krissoff, F. Kuchler, K. Nelson, and G. Price. 2004. Traceability in the U. S. Food Supply: Economic Theory and Industry Studies. Washington DC: U. S. Department of Agriculture, ESCS For Agr. Econ. Rep. 830, March. Grossman, S. J. , and O. D. Hart. 1983. "An Analysis of the Principal-Agent Problem. " Econometrica 51(1):7-46. Haubrich, J. G. 1994. "Risk aversion, performance pay, and the Principal-Agent problem. " Journal of Political Economy 102(2):258-276. Hardaker, B., Huirne, R. B. M., J.R. Anderson, and G. Lien. 2004 Coping with Risk in Agriculture, 2nd Edition ed. Cambridge, MA: CABI Publishing. Hennessy, D. A. 1996. "Information Asymmetry as a Reason for Food Industry Vertical Integration. " American Journal of Agricultural Economics 78(4):1034-1043. Hilton, W. M. 2005. “Beef Quality Assurance Injection Sites and Techniques. ” Purdue Extension VY-60-W, Purdue University. International Organization for Standardization. 2000. ISO 9000:2000. Quality Management Standards. King, R. P. , G. B. C. Backus, and M. A. Gaag. 2007. “Incentive Systems for Food Quality Control with Repeated Deliveries: Salmonella Control in Pork Production. ” European Review of Agricultural Economics 34 (1):81-104. Mas-Collel, A., M.D. Whinston, and J.R. Green. 1996. Microeconomic Theory. New York: Oxford University Press. McKenna, D. R. , D. L. Roeber, P. K. Bates, T. B. Schmidt, D. S. Hale, D. B. Griffin, J. W. Savell, J. C. Brooks, J. B. Morgan, T. H. Montgomery, K. E. Belk, and G. C. Smith. 2002. "Incidence of injection-site lesions in beef top sirloin butts. " Journal of Animal Science 80: 1212-1222. Morgan, J. B. , A. W. Tittor, and W. R. Lloyd. 2004. "Influence of Ceftiofur Sodium Biobullet Administration on Tenderness and Tissue Damage in Beef Round Muscle. " Journal of Animal Science 82:3308-3313. Pape, W. R. , B. Jorgenson, D. Larson, and R. Boyle. 2003. "Is Traceability Too Expensive?" Food Traceability Report 2:16-17. Prendergast, C. 1999. "The Provision of Incentives in Firms. " Journal of Economic Literature 37(1):7-63. Robb, J. G. , and E. L. Rosa. 2004. "Some Issues Related to Beef Traceability: Transforming Cattle into Beef in the United States. " In H. Doyle, ed. U. S. Livestock Identification Systems: Risk Management and Market Opportunities Tucson AZ: Western Extension Marketing Committee, pp. 7. 1-7. 9. Roeber, D. L. , J. B. Morgan, K. E. Belk, J. C. Brooks, and P. K. Bates. 2000. “What are the Costs (Losses per Steer/Heifer) for Quality Defects/Nonconformities Identified by the National beef quality audit 2000?” In G. C. Smith, J. W. Savell, J. B. Morgan and T. H. Montgomery eds. The Final Report of the Injection-Site Lesion Audits, submitted to the National Cattlemen's Beef Association. Fort Collins CO: Center for Red Meat Safety, Department of Animal Sciences, Colorado State University, pp. 94 -103. Roeber, D. L. , R. C. Cannell, K. E. Belk, J. A. Scanga, G. L. Cowman, and G. C. Smith. 2001. "Incidence of injection-site lesions in beef top sirloin butts. " Journal of Animal Science 79:2615-26188. RTI International. 2007. “GIPSA Livestock and Meat Marketing Study - Volume 3: Fed Cattle and Beef Industries Final Report”. The final report prepared to Grain Inspection, Packers and Stockyard Administration. Washington DC: U.S. Department of Agriculture. Available at http://archive.gipsa.usda.gov/psp/issues/livemarketstudy/LMMS_Vol_3.pdf Salanié, B. 1997. The economics of contracts: A primer. Cambridge and London: MIT Press. Starbird, S. A. 2005. "Moral Hazard, Inspection Policy, and Food Safety. " American Journal of Agricultural Economics 87(1):15-27.