Asymmetric Grading Error And Adverse Selection: Lemons In The California Prune Industry

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Asymmetric Grading Error And Adverse Selection: Lemons In The California Prune Industry

Author Info

Chalfant, James A.
James, Jennifer S.
Lavoie, Nathalie
Sexton, Richard J.

Abstract

Grading systems are often introduced to address the classic adverse selection problem associated with asymmetric information about product quality. However, grades are rarely measured perfectly, and adverse selection outcomes may persist due to grading error. We study the effects of errors in grading, focusing on asymmetric grading errors- namely when low-quality product can erroneously be classified as high quality, but not vice versa. In conceptual model, we show the effects of asymmetric grading errors on returns to producers. Application to the California prune industry shows that grading errors reduce incentives to produce more valuable, larger prunes.

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Publisher Info
Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 24 (1999)
Issue (Month): 01 (July)
Pages:
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Handle: RePEc:ags:jlaare:30878

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Miguel Carriquiry & Bruce A. Babcock & Roxana Carbone, 2003. "Optimal Quality Assurance Systems for Agricultural Outputs," Center for Agricultural and Rural Development (CARD) Publications 03-wp328, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
Other versions:
- Carriquiry, Miguel A. & Babcock, Bruce A. & Carbone, Roxana, 2003. "Optimal Quality Assurance Systems for Agricultural Outputs," Staff General Research Papers 10222, Iowa State University, Department of Economics. [Downloadable!]
Peter Bogetoft & Henrik B. Olesen, 2000. "Incentives, Information Systems and Competition," CIE Discussion Papers 2000-12, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
Carriquiry, Miguel A. & Babcock, Bruce A., 2005. "Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry," 2005 Annual meeting, July 24-27, Providence, RI 19549, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
Other versions:
- Miguel Carriquiry & Bruce A. Babcock, 2004. "Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry," Center for Agricultural and Rural Development (CARD) Publications 04-wp377, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
- Carriquiry, Miguel A. & Babcock, Bruce A., 2004. "Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry," Staff General Research Papers 12215, Iowa State University, Department of Economics. [Downloadable!]
- Miguel Carriquiry & Bruce A. Babcock, 2007. "Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 89(1), pages 12-23, 02. [Downloadable!] (restricted)
David A. Hennessy, 2005. "Informed Control Over Inputs and Extent of Industrial Processing," Center for Agricultural and Rural Development (CARD) Publications 05-wp398, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
Other versions:
- Hennessy, David A., 2005. "Informed Control Over Inputs and Extent of Industrial Processing," Staff General Research Papers 12377, Iowa State University, Department of Economics.
- Hennessy, David A., 2007. "Informed control over inputs and extent of industrial processing," Economics Letters, Elsevier, vol. 94(3), pages 372-377, March. [Downloadable!] (restricted)
Miguel Carriquiry & Bruce A. Babcock, 2004. "Reputation, Quality Observability, and the Choice of Quality Assurance Systems," Center for Agricultural and Rural Development (CARD) Publications 04-wp373, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
Other versions:
- Carriquiry, Miguel A. & Babcock, Bruce A., 2004. "Reputation, Quality Observability, and the Choice of Quality Assurance Systems," Staff General Research Papers 12038, Iowa State University, Department of Economics. [Downloadable!]
Marcoul, Philippe & Lawrence, John & Hueth, Brent, 2006. "Grader Bias In Cattle Markets? Evidence From Iowa," 2006 Annual meeting, July 23-26, Long Beach, CA 21123, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
Other versions:
- Hueth, Brent & Marcoul, Philippe & Lawrence, John D., 2004. "Grader Bias in Cattle Markets? Evidence from Iowa," Staff General Research Papers 11465, Iowa State University, Department of Economics.
- Brent Hueth & John D. Lawrence & Philippe Marcoul, 2004. "Grader Bias in Cattle Markets? Evidence from Iowa," Center for Agricultural and Rural Development (CARD) Publications 04-wp355, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
- Brent Hueth & Philippe Marcoul & John Lawrence, 2007. "Grader Bias in Cattle Markets? Evidence from Iowa," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 89(4), pages 890-903, November. [Downloadable!] (restricted)
Moisés de Andrade Resende Filho & Brian L. Buhr, 2006. "A Principal-Agent Model For Evaluating The Economic Value Of A Beef Traceability System: A Case Study With Injection-Site Lesions Control In Fed Cattle In The Us," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 127, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
Resende-Filho, Moises, 2007. "A Principal-Agent Model for Investigating Traceability Systems Incentives on Food Safety," 105th Seminar, March 8-10, 2007, Bologna, Italy 7897, European Association of Agricultural Economists. [Downloadable!]

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