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Quality Certification by Geographical Indications, Trademarks and Firm Reputation

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  • Menapace, Luisa
  • Moschini, GianCarlo

Abstract

We study firm reputation as a mechanism to assure product quality in perfectly competitive markets in a context in which both certification and trademarks are available. Shapiro’s (1983) model of reputation is extended to reflect both collective and firm-specific reputations, and this framework is used to study certification and trademarks for food products with a regional identity, known as geographical indications (GIs). Our model yields two primary results. First, in markets with asymmetric information and moral hazard problems, credible certification schemes reduce the cost of establishing reputation and lead to welfare gains compared to a situation in which only private trademarks are available. Hence, certification improves the ability of reputation to operate as a mechanism for assuring quality. Second, the actual design of the certification scheme plays an important role in mitigating informational problems. From a policy perspective, our results have implications for the current debate and negotiations on GIs at the World Trade Organization and the ongoing product quality policy reform within the European Union. With regard to the instrument of choice to provide intellectual property protection for GIs, our model favors a sui generis scheme based on appellations over certification marks. Finally, our model supports the validity of the traditional specialities guaranteed scheme of the European Union as an instrument for the provision of high-quality products that are not linked to a geographic area.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado with number 61778.

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Date of creation: 2010
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Handle: RePEc:ags:aaea10:61778

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Related research

Keywords: Asymmetric Information; Certification; Geographical Indications; Quality; Reputation; Environmental Economics and Policy; D23; D82; L14; L15; Q1;

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References

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  1. Cabral, L.M.B., 2000. "Stretching Firm and Brand Reputation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 00-07, New York University, Leonard N. Stern School of Business-.
  2. Moschini, GianCarlo, 2004. "Intellectual Property Rights and the World Trade Organization: Retrospect and Prospects," Staff General Research Papers 10442, Iowa State University, Department of Economics.
  3. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December.
  4. Bramley, Cerkia & Kirsten, Johann F., 2007. "Exploring the Economic Rationale for Protecting Geographical Indicators in Agriculture," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 46(1), March.
  5. Zago, Angelo M. & Pick, Daniel H., 2004. "Labeling Policies in Food Markets: Private Incentives, Public Intervention, and Welfare Effects," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), April.
  6. Sergio H. Lence & Stéphan Marette & Dermot J. Hayes & William Foster, 2007. "Collective Marketing Arrangements for Geographically Differentiated Agricultural Products: Welfare Impacts and Policy Implications," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 947-963.
  7. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  8. Winfree, Jason A. & McCluskey, Jill J., 2003. "Collective Reputation And Quality," 2003 Annual meeting, July 27-30, Montreal, Canada 21927, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  9. Teuber, Ramona, 2007. "Geographical Indications of Origin as a Tool of Product Differentiation: The Case of Coffee," 105th Seminar, March 8-10, 2007, Bologna, Italy 7866, European Association of Agricultural Economists.
  10. Moschini, GianCarlo & Menapace, Luisa & Pick, Daniel, 2008. "Geographical Indications and the Competitive Provision of Quality in Agricultural Markets," Staff General Research Papers 12858, Iowa State University, Department of Economics.
  11. Bar-Isaac, Heski & Tadelis, Steven, 2008. "Seller Reputation," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(4), pages 273-351, August.
  12. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  13. Falvey, Rodney E, 1989. "Trade, Quality Reputations and Commercial Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 607-22, August.
  14. Rafael Rob & Arthur Fishman, 2005. "Is Bigger Better? Customer Base Expansion through Word-of-Mouth Reputation," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1146-1175, October.
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Cited by:
  1. Bonroy, O. & Constantatos, C., 2013. "On the economics of labels : a review of the theoretical literature," Working Papers 2013-01, Grenoble Applied Economics Laboratory (GAEL).
  2. Tauber, Ramona & Anders, Sven & Langinier, Corinne, 2011. "The Economics of Geographical Indications: Welfare Implications," Working Papers 103262, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
  3. Deselnicu, Oana C. & Costanigro, Marco & Souza-Monteiro, Diogo M. & McFadden, Dawn Thilmany, 2013. "A Meta-Analysis of Geographical Indication Food Valuation Studies: What Drives the Premium for Origin-Based Labels?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(2), August.
  4. Teuber, Ramona, 2011. "Protecting Geographical Indications: Lessons learned from the Economic Literature," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 116081, European Association of Agricultural Economists.

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