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Quality Testing and Incentives in Organizations. Cooperative vs Investor-Owned Firm

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  • Sanxi Li
  • Bing Ye
  • Jianyu Yu

Abstract

We study the incentives for quality provision in a farmer-owned cooperative (co-op) and an investor-owned firm (iof). The quality of the final product is a function of the quality of the inputs, which are determined by the farmers? unobservable efforts. The input qualities are unobservable at the outset, but an organization can identify these by conducting costly quality testing. We show that the farmer-owned co-op has a stronger incentive to conduct quality testing only if the size of the organization is large. The iof offers a stronger incentive for quality provision only if both the quality costs and the size of the organization are at intermediate levels.

Suggested Citation

  • Sanxi Li & Bing Ye & Jianyu Yu, 2011. "Quality Testing and Incentives in Organizations. Cooperative vs Investor-Owned Firm," Revue économique, Presses de Sciences-Po, vol. 62(3), pages 599-608.
    • Handle: RePEc:cai:recosp:reco_623_0599
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    Cited by:

    1. Li, Sanxi & Ye, Bing & Yu, Jianyu, 2012. "Observability and incentive in organizations," Economics Letters, Elsevier, vol. 114(2), pages 205-207.

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