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Agricultural Production Clubs: Viability and Welfare Implications

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  • Langinier, Corinne
  • Babcock, Bruce A.

Abstract

Consumers are in general less informed than producers about the quality of agricultural goods. To reduce he information gap, consumers can rely on standards (e.g., certification) that ensure quality and origin of the goods. These costly standards can be adopted by a group of producers of high-quality goods. We study the formation of such a group that we model as a club. We first investigate under what circumstances a club of a given size is desirable for producers, and for society. We then analyze the optimal size of the club when there exists a direct barrier to entry, and when there is no barrier. We find that for intermediate values of certification costs, the industry and a club of a given size of certified producers have divergent incentives. Furthermore, if barriers to entry are allowed, an optimal size of club exists, which allows some revelation of information. In the absence of barrier to entry, it is less likely that a club will emerge.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12670.

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Date of creation: 28 Aug 2006
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Publication status: Published in Journal of Agricultural & Food Industrial Organization 2008, vol. 6 no. 2
Handle: RePEc:isu:genres:12670

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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References

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  1. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  3. Albano, Gian Luigi & Lizzeri, Alessandro, 2001. "Strategic Certification and Provision of Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 267-83, February.
  4. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  5. John M. Crespi & St)phan Marette, 2001. "How Should Food Safety Certification be Financed?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 852-861.
  6. Stéphan Marette, 2005. "The Collective-Quality Promotion in the Agribusiness Sector: An Overview," Center for Agricultural and Rural Development (CARD) Publications 05-wp406, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  7. Bergès-Sennou Fabian & Bontems Philippe & Réquillart Vincent, 2004. "Economics of Private Labels: A Survey of Literature," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(1), pages 1-25, February.
  8. Biglaiser, Gary & Friedman, James W., 1994. "Middlemen as guarantors of quality," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 509-531, December.
  9. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  10. Auriol, Emmanuelle & Schilizzi, Steven, 2003. "Quality Signaling through Certification. Theory and an Application to Agricultural Seed Market," IDEI Working Papers 165, Institut d'Économie Industrielle (IDEI), Toulouse.
  11. 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.
  12. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  13. Hayes, Dermot J. & Lence, Sergio H. & Babcock, Bruce A., 2005. "Geographic Indications and Farmer-Owned Brands: Why Do the U.S. And E.U. Disagree?," Staff General Research Papers 12418, Iowa State University, Department of Economics.
  14. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  15. Stéphan Marette & John Crespi, 2003. "Can Quality Certification Lead to Stable Cartels?," Review of Industrial Organization, Springer, vol. 23(1), pages 43-64, August.
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Citations

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Cited by:
  1. Saak, Alexander E., 2011. "A Model of Labeling with Horizontal Differentiation and Cost Variability," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103540, Agricultural and Applied Economics Association.
  2. Ngokkuen, Chuthaporn & Grote, Ulrike, 0. "Geographical Indication for Jasmine Rice: Applying a Logit Model to Predict Adoption Behavior of Thai Farm Households," Quarterly Journal of International Agriculture, Humboldt-Universität zu Berlin, vol. 51.
  3. 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.
  4. Bouamra-Mechemache, Zohra & Yu, Jianyu, 2011. "Quality Choice, Competition and Vertical Relationship in a Market of Protected Designation of Origin," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103607, Agricultural and Applied Economics Association.
  5. Galli, Francesca & Carbone, Anna & Caswell, Julie A. & Sorrentino, Alessandro, 2011. "A Multi-Criteria Approach to Assessing PDOs/PGIs: An Italian Pilot Study," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 2(3).
  6. Daniela Benavente, 2010. "Geographical Indications: The Economics of Claw-Back," IHEID Working Papers 11-2010, Economics Section, The Graduate Institute of International Studies.
  7. Christophe Charlier & Mai-Anh Ngo, 2012. "Geographical indications outside the European regulation of PGIs, and the rule of free movement of goods: Lessons from cases judged by the Court of Justice of the European Communities," Post-Print halshs-00721784, HAL.
  8. Christophe Charlier & Mai-Anh Ngo, 2012. "Geographical indications outside the European Regulation on PGIs, and the rule of the free movement of goods: lessons from cases judged by the Court of Justice of the European Communities," European Journal of Law and Economics, Springer, vol. 34(1), pages 17-30, August.
  9. Daniela Benavente, 2010. "The Economics of Geographical Indications: GIs Modelled As Club Assets," IHEID Working Papers 10-2010, Economics Section, The Graduate Institute of International Studies.
  10. Bontemps, Christophe & Bouamra-Mechemache, Zohra & Simioni, Michel, 2012. "Quality Labels and Firm Survival in the French Cheese Industry," TSE Working Papers 12-335, Toulouse School of Economics (TSE).
  11. 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).

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