Incentive systems for Salmonella control in pork production

Purpose: This paper presents a dynamic principal-agent analysis of incentive systems for Salmonella control. Methodology/approach: Based on the producer's performance history in controlling Salmonella, the incentive systems analysed determine quality premiums to the producer, testing frequencies for hogs delivered, as well as charges to the producer for testing and penalties. Using cost estimates and technical parameters, we evaluate two dynamic incentive systems. We also assess the impact of ownership structure on performance. Findings: The more efficient incentive system economises on testing costs by reducing the probability of testing in response to a favourable production history and is preferred under all ownership structures. Practical implications: The model used in this analysis was developed specifically for the case of Salmonella control in pork, but the framework presented here can be adapted for use in other settings where multiple producers interact repeatedly with a processing firm. For example, the model could be used in an analysis of performance history-based systems to determine audit frequency and intensity in certification systems like those used for organic producers and processors. Originality/value: This framework can be a valuable tool for analysing the costs and benefits of implementing dynamic, performance history-based incentive systems in settings where supply chain trading partners have longer term relationships with repeated transactions.