Microeconomic theory and practice of formation of contractual relations in agribusiness

Abstract

Contractual relations play an important role in agribusiness, and therefore a thorough understanding of the creation and management of these relations at all levels, from primary production to the final consumer, is essential. The aim of this article is to evaluate the functional mechanisms of creating contractual relations in the theory and practice of agribusiness. The theoretical approach helps to clarify and understand the basic processes that occur when concluding contracts, the practical approach is based on improving contracts based on emerging shortcomings, which can have a relatively high risk and cost due to its random nature. Therefore, it is useful to use both approaches at the same time, where existing theoretical knowledge leads to better empirical outcomes, and these then become a source of newly generalized theoretical knowledge. The main mechanisms for creating contractual relationships are issues of coordination, motivation and transaction costs. There are several basic coordination mechanisms within the economic theory of the organization. In the classical approach, invisible hand and handbook mechanisms appear. Price plays a key role here and the invisible hand mechanism prevails. In the neoclassical approach, the role of price as a coordination mechanism is somewhat weaker, and therefore the coordination mechanism can be described by a combination of a handbook in the first place and an invisible hand in the second place. Elements of the handshake mechanism may also appear in this approach. In the relational concept, the role of price is limited and the other factors already mentioned prevail. Thus, the handshake coordination mechanism predominates here, and invisible hand mechanisms or even handbooks may also partially appear. Motivation, which is given by the different interests of individuals involved in the formation of contractual relations, also represents an important issue in the mechanisms of creating contractual relations.