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Marketing Orders, Grading Errors, and Price Discrimination

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  • James A. Chalfant
  • Richard J. Sexton

Abstract

Some marketing orders allow an agricultural industry to regulate the flow of product to market. We examine a more common, but less controversial, aspect of marketing orders, the setting and enforcement of grades, and show that purposefully introducing error into the grading process reduces farmers' incentives to produce high-quality product, thus partially sustaining the adverse selection problem that would exist in the absence of grades. Because demand for high-quality product is generally inelastic relative to demand for low-quality product, grading error can increase industry profit. In principle, an industry can achieve through grading error the same allocation of product between high- and low-quality outlets as attainable through direct volume regulation. Copyright 2002, Oxford University Press.

Suggested Citation

  • James A. Chalfant & Richard J. Sexton, 2002. "Marketing Orders, Grading Errors, and Price Discrimination," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 53-66.
    • Handle: RePEc:oup:ajagec:v:84:y:2002:i:1:p:53-66
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    File URL: http://hdl.handle.net/10.1111/1467-8276.00242
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    Citations

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    Cited by:

    1. Philippe Marcoul & John Lawrence, 2007. "Grader Bias in Cattle Markets? Evidence from Iowa," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 890-903.
    2. Fraser, Iain, 2005. "Microeconometric analysis of wine grape supply contracts in Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 1-24.
    3. Nie, Wenjing & Li, Taiping & Zhu, Liqun, 2020. "Market demand and government regulation for quality grading system of agricultural products in China," Journal of Retailing and Consumer Services, Elsevier, vol. 56(C).
    4. Crespi, John M. & Marette, Stephan, 2003. "Some Economic Implications Of Public Labeling," Journal of Food Distribution Research, Food Distribution Research Society, vol. 34(3), pages 1-12, November.
    5. Ibarburu, Maro A. & Lawrence, John D. & Busby, Darrell, 2007. "Economics of Increased Beef Grader Accuracy," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37558, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    6. Armelle Mazé & Claude Ménard, 2010. "Private ordering, collective action, and the self-enforcing range of contracts," European Journal of Law and Economics, Springer, vol. 29(1), pages 131-153, February.
    7. Armelle Mazé & Claude Ménard, 2010. "Private Ordering, Collective Action, and the Self-Enforcing Range of Contracts. The Case of French Livestock Industry," Post-Print halshs-00624288, HAL.
    8. Armelle Mazé, 2005. "Contract Law and the self-enforcing range of contracts in agriculture," Working Papers halshs-00354960, HAL.
    9. Maze, Armelle, 2006. "Multilateral reputation mechanisms and contract law in agriculture : complement or substitutes," 2006 Annual meeting, July 23-26, Long Beach, CA 21285, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Gray, Richard S. & Sumner, Daniel A. & Alston, Julian M. & Brunke, Henrich, 2004. "Economic Impacts Of Mandated Grading And Testing To Avoid A Negative Food Safety Event: Ex Ante Analysis Of The Federal Marketing Order For Pistachios," 2004 Annual meeting, August 1-4, Denver, CO 20031, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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