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Impact of Third-Party Enforcement of Contracts in Agricultural Markets - A Field Experiment in Vietnam

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  • Saenger, Christoph
  • Torero, Maximo
  • Qaim, Matin

Abstract

We study the effect of alleviating information asymmetry regarding product quality that is widespread in developing-country agricultural markets. Opportunistic buyers may underreport quality levels back to farmers to reduce the price they have to pay. In response, farmers may curb investment, negatively affecting farm productivity. In an experiment, we entitle randomly selected smallholder dairy farmers in Vietnam to independently verify milk testing results. Treatment farmers use 13 percent more inputs and also increase their output. We show that the buying company had initially not underreported product quality, which is why third-party monitoring led to a Pareto improvement in the supply chain.

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Bibliographic Info

Paper provided by Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development in its series Discussion Papers with number 143583.

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Date of creation: Jan 2013
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Handle: RePEc:ags:gagfdp:143583

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Postal: Platz der Göttinger Sieben 5, D-37073 Göttingen
Web page: http://www.uni-goettingen.de/globalfood
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Related research

Keywords: Agribusiness; Industrial Organization; Institutional and Behavioral Economics; International Development; Livestock Production/Industries; C93; D86; L14; O13; Q12; Q13;

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  1. Shawn Cole & Xavier Gine & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2013. "Barriers to Household Risk Management: Evidence from India," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 104-35, January.
  2. Michael E. Sykuta & Michael L. Cook, 2001. "A New Institutional Economics Approach to Contracts and Cooperatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1273-1279.
  3. 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.
  4. Elizaphan J. O. Rao & Bernhard Brümmer & Matin Qaim, 2012. "Farmer Participation in Supermarket Channels, Production Technology, and Efficiency: The Case of Vegetables in Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(4), pages 891-912.
  5. Tomislav Vukina & Porametr Leegomonchai, 2006. "Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from the Broiler Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(3), pages 589-605.
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