The John M. Olin Center

Paper Abstract

1034. J. Mark Ramseyer, Contracting for Terroir in Sake, 06/2020.

Abstract: Over the course of the last half century, Japanese consumers have steadily lost their taste for sake. A few large producers dominate the mass market through economies of scale, but the regional brewers have gradually gone out of business. In this environment, a small group of enterprising regional brewers began to create a market for premium sake with the environmental variations so important to French terroir.

To produce the delicate and subtle terroir sake, brewers must convince local farmers to grow the high-risk and high-cost varieties of rice optimized for premium sake. The challenge presents contractual problems with unusually complex incentive and informational requirements. I explore the arrangements by which brewers have addressed these problems. Some have decided to grow the rice themselves–"solving" the contractual problem through vertical integration. Others have constructed deceptively simple arrangements that elicit the requisite information, bind the firm to the community through social capital, and (by paying a sufficiently high price) give the brewer the right to intervene directly in the farming.

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