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Reputation, Quality Observability, and the Choice of Quality Assurance Systems

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Abstract

Participants in a supply chain of agricultural value-added products face significant challenges. Many of the costly distinctive traits desired by consumers are difficult (if not impossible) to observe even after consumption. A complicating factor, addressed here, is that in some circumstances delivered quality can only be imperfectly learned and/or affected stochastically by producers. Hence, both symmetric and asymmetric informational imperfections may be present. In order for markets for these classes of goods to arise, firms touting the quality of the product need to be trusted. A repeated-purchases model is developed to explore the fundamental economic factors that lie behind the choice of different quality assurance systems and their associated degrees of stringency by firms. Differences in the quality discoverability of a sought-after attribute, attractiveness of a market, and the value placed in the future are among the factors contributing to the implementation of widely diverse systems across participants in different markets. Close attention is paid to the role of reputations in providing the incentives for firms to deliver high-quality goods in an environment of symmetrically imperfect information.

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File URL: http://www.card.iastate.edu/publications/DBS/PDFFiles/04wp373.pdf
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Bibliographic Info

Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 04-wp373.

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Date of creation: Sep 2004
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Handle: RePEc:ias:cpaper:04-wp373

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Related research

Keywords: imperfect information; product quality; quality assurance; repeated purchases; reputations; supply chain; value-added agriculture.;

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  1. Reardon, Thomas & Farina, Elizabeth Maria Mercier Querido, 2001. "The Rise Of Private Food Quality And Safety Standards: Illustrations From Brazil," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IAMA), vol. 4(04).
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Cited by:
  1. Donnet, M. Laura & Weatherspoon, Dave D. & Hoehn, John P., 2007. "Price Determinants in Top Quality E-Auctioned Specialty Coffees," Staff Papers 9310, Michigan State University, Department of Agricultural, Food, and Resource Economics.

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