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

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Author Info
Miguel Carriquiry
Bruce A. Babcock () (Center for Agricultural and Rural Development (CARD))

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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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Publisher 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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Miguel Carriquiry & Bruce A. Babcock & Roxana Carbone, 2003. "Optimal Quality Assurance Systems for Agricultural Outputs," Center for Agricultural and Rural Development (CARD) Publications 03-wp328, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
  2. Daughety, Andrew F & Reinganum, Jennifer F, 1995. "Product Safety: Liability, R&D, and Signaling," American Economic Review, American Economic Association, vol. 85(5), pages 1187-1206, December. [Downloadable!] (restricted)
    Other versions:
  3. Hennessy, David A., 2002. "Information Asymmetry as a Reason for Food Industry Vertical Integration," Staff General Research Papers 5032, Iowa State University, Department of Economics.
  4. Barrett, Chad & Kaus, Phil & Smith, Darnell & Hayes, Dermot J. & Babcock, Bruce A. & Meyers, William H., 1999. "Iowa Ag Review," Staff General Research Papers 1414, Iowa State University, Department of Economics.
    Other versions:
    • Elmore, Steven L. & Smith, Darnell B. & Meyers, William H. & Hart, Chad & Babcock, Bruce A. & Lawrence, John D., 1996. "Iowa Ag Review," Staff General Research Papers 1027, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John C. & Clarke, Sandra & Heffernan, Keith & Hempe, Betty & Kaus, Phillip & Olson, Becky, 2001. "Iowa Ag Review," Staff General Research Papers 1940, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Thomas, Katie & Heffernan, Keith & Olson, Becky & Kaus, Phillip, 2000. "Iowa Ag Review," Staff General Research Papers 1819, Iowa State University, Department of Economics.
    • Mohanty, Samarendu & Hayes, Dermot J. & Clemens, Roxanne & Meyers, William H. & Smith, Darnell B. & Elmore, Steven L. & Rude, James & Baumel, C. Phillip & Fabiosa, Jacinto & Fuller, Frank H., 1997. "Iowa Ag Review," Staff General Research Papers 1069, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Clarke, Sandra & Heffernan, Keith & Hart, Chad & Hempe, Betty & Olson, Becky, 2001. "Iowa Ag Review," Staff General Research Papers 2017, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Thomas, Katie & Heffernan, Keith & Olson, Becky & Kaus, Phillip, 1999. "Iowa Ag Review," Staff General Research Papers 1560, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Clarke, Sandra & Heffernan, Keith & Hempe, Betty & Hart, Chad & Olson, Becky, 2001. "Iowa Ag Review," Staff General Research Papers 1997, Iowa State University, Department of Economics.
    • Lawrence, John D. & Meyer, Seth D. & Kruse, John R. & Hayes, Dermot J. & Babcock, Bruce A. & Hennessy, David & Smith, Darnell B. & Meyers, William H., 1995. "Iowa Ag Review," Staff General Research Papers 864, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Clarke, Sandra & Heffernan, Keith & Hempe, Betty & Olson, Becky, 2002. "Iowa Ag Review," Staff General Research Papers 2052, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Clarke, Sandra & Heffernan, Keith & Hempe, Betty & Clemens, Roxanne & Olson, Becky, 2002. "Iowa Ag Review," Staff General Research Papers 2092, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Chaherli, Nabil M. & Lakshminarayan, P. G. & Smith, Darnell B. & Elmore, Steven L. & Pautsch, Greg & Meyers, William H. & Hart, Chad, 1999. "Iowa Ag Review," Staff General Research Papers 1527, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Thomas, Katie & Heffernan, Keith & Olson, Becky & Kaus, Phillip, 2000. "Iowa Ag Review," Staff General Research Papers 1778, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Thomas, Katie & Heffernan, Keith & Olson, Becky & Kaus, Phillip, 1999. "Iowa Ag Review," Staff General Research Papers 1667, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Heffernan, Keith & Kaus, Phillip & Pim, Judith & Hempe, Betty & Pyle, Janis & Olson, Becky, 2000. "Iowa Ag Review," Staff General Research Papers 1859, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Heffernan, Keith & Kaus, Phillip & Thomas, Katie & Olson, Becky, 2000. "Iowa Ag Review," Staff General Research Papers 1713, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Beghin, John & Heffernan, Keith & Hempe, Betty & Chimenti, Linda & Olson, Becky & Kaus, Phillip, 2000. "Iowa Ag Review," Staff General Research Papers 1900, Iowa State University, Department of Economics.
    • Babcock, Bruce A. & Clarke, Sandra & Hempe, Betty & Olson, Becky & Beghin, John & Heffernan, Keith & Hart, Chad, 2001. "Iowa Ag Review," Staff General Research Papers 1983, Iowa State University, Department of Economics.
    • Smith, Darnell B. & Meyers, William H. & Meyer, Seth D. & Hayes, Dermot J., 1999. "Iowa Ag Review," Staff General Research Papers 1528, Iowa State University, Department of Economics.
  5. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr. [Downloadable!] (restricted)
  6. De, Sankar & Nabar, Prafulla, 1991. "Economic implications of imperfect quality certification," Economics Letters, Elsevier, vol. 37(4), pages 333-337, December. [Downloadable!] (restricted)
  7. Hayes, Dermot J. & Lence, Sergio H. & Stoppa, Andrea, 2004. "Farmer-Owned Brands?," Staff General Research Papers 11285, Iowa State University, Department of Economics.
    Other versions:
  8. Marette, Stephan & Bureau, Jean-Christophe & Gozlan, Estelle, 2000. "Product Safety Provision and Consumers' Information," Australian Economic Papers, Blackwell Publishing, vol. 39(4), pages 426-41, December. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November. [Downloadable!] (restricted)
  11. Laurian J. Unnevehr & Helen H. Jensen, 1996. "HACCP as a Regulatory Innovation to Improve Food Safety in the Meat Industry," Center for Agricultural and Rural Development (CARD) Publications 96-wp152, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
  12. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law & Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  13. John D. Lawrence, 2002. "Quality Assurance "Down Under": Market Access and Product Differentiation," Center for Agricultural and Rural Development (CARD) Publications 02-mbp1, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
  14. Mason, Charles F & Sterbenz, Frederic P, 1994. "Imperfect Product Testing and Market Size," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 61-86, February. [Downloadable!] (restricted)
  15. John D. Lawrence, 2002. "Quality Assurance "Down Under": Market Access and Product Differentiation," Midwest Agribusiness Trade Research and Information Center (MATRIC) Publications 02-mbp1, Midwest Agribusiness Trade Research and Information Center (MATRIC) at Iowa State University. [Downloadable!]
  16. Lawrence, John D., 2002. "Quality Assurance 'Down under': Market Access and Product Differentiation," Staff General Research Papers 2104, Iowa State University, Department of Economics. [Downloadable!]
  17. David A. Hennessy & John A. Miranowski & Bruce A. Babcock, 2004. "Genetic Information in Agricultural Productivity and Product Development," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 86(1), pages 73-87, 02. [Downloadable!] (restricted)
    Other versions:
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