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Contract to purchase farm products is a means of reducing risks caused by price fluctuations. If the contract is not carried out, loss is much bigger than compensations for both parties because buying party does not have raw materials it needs while the selling one cannot sell its produce. | Researches & discussions Contract to purchase farm products is a means of reducing risks caused by price fluctuations. If the contract is not carried out, loss is much bigger than compensations for both parties because buying party does not have raw materials it needs while the selling one cannot sell its produce. One of the main causes of breach of contract is the inappropriate and unscientific definition of constraint (or fine). This research tries to identify coefficient of constraints using the game theory and find that the coefficient of constraint on implementation of the contract to buy farm product should be equal to or U D greater than P -F P % of the value of P the contract. Keywords: Nash equilibrium; normal-form game; price at the end of period; constraint. * University of Economics - HCMC O ne of measures to reduce risk caused by fluctuations in price of farm products is the contract to sell between peasants and companies (food processing or agricultural materials companies, or exporters of farm products) that sets some fine or compensation as a measure to ensure interests of involved parties. This model, however, is usually broken by fluctuations in market price at harvest time and inappropriate compensation, because the coefficient of constraint on implementation of the contract is not determined scientifically. This paper has two main contents: (1) scientific basis for identification of coefficient of constraint; and (2) policy implications that aim at perfecting the contract to sell with a view to reducing risks for peasants. I. SCIENTIFIC BASIS FOR ESTABLISHEMENT OF COEFFICIENT OF CONSTRAINT 1. Basic arguments of the game theory according to Mankiw, 2003 [1], the classic problem widely used as an example of the game theory is the prisoner’s dilemma that could be presented in the following matrix: Economic Development Review - January 2011 37 Researches & discussions Table 1: Prisoner’s dilemma Player Prisoner .
