Regulating an Experience Good Produced in the Formal Sector of a Developing Country when Consumers Cannot Identify Producers
AbstractIn developing countries, consumers can buy many goods either in formal markets or in informal markets and decide where to purchase based on the product's price and anticipated quality. We assume consumers cannot assess quality prior to purchase and cannot, at reasonable cost, identify who produced the good they are considering. Many products (meats, fruits, vegetables, fish, grains) sold both in formal groceries and, less formally, on the street fit this description. We assume that producers can adjust quality at a cost and only firms in the formal sector are subject to government regulation. In the long run, producers migrate to the sector that is more pro table. Using this model, we demonstrate how regulations in the formal sector can lead to a quality gap between formal and informal sector goods. We moreover investigate how changes in regulation affect quality, price, aggregate production, and the number of firms in each sector.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Development Economics.
Volume (Year): 16 (2012)
Issue (Month): 4 (November)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669
Other versions of this item:
- McQuade, Timothy & Salant, Stephen W. & Winfree, Jason, 2010. "Regulating an Experience Good Produced in the Formal Sector of a Developing Country when Consumers Cannot Identify Producers," Discussion Papers dp-10-52-rev, Resources For the Future.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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