Why did contracts supplant the cash market in the broiler industry? An economic analysis featuring technological innovation and institutional response

The decision to write contracts for production of commodities can be framed as an institutional response to changing industry and market conditions. When innovations increase available rents to technology owners (or technology appropriators), contracts can replace cash market transactions even though contracts carry higher transaction costs. We proceed by first fully documenting technological innovation in the broiler industry and tracing the evolution of contracts in the broiler industry. Next, we adopt a stylistic model to demonstrate how technological innovation might induce a switch to contract sales from cash market transactions. This paper contributes to the literature by investigating major institutional change in the broiler industry through an integrated analysis that weaves together industry history with elements of institutional economics, transaction cost theory, and game-theoretic economic analysis.