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Quality Observability and the Structure of Agricultural Supply Chains

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  • Tara Mitchell

    (Department of Economics, Trinity College Dublin)

Abstract

This paper presents a model of a supply chain for a good involving two stages of production. Effort must be exerted at both stages if a high-quality good is to be produced. Effort is not observable and the quality of the good is not perfectly observable. The model predicts that there will be a range of values of the price difference between high-quality and low-quality goods for which production of high-quality goods will occur with vertical integration but will not occur if the tasks are carried out by separate agents. The range of price values for which this occurs will be decreasing as the level of observability of quality increases and will disappear as quality becomes perfectly observable. The paper also presents some case studies of supply chains for various products in a number of developing countries that have characteristics which are consistent with the predictions of the model.

Suggested Citation

  • Tara Mitchell, 2016. "Quality Observability and the Structure of Agricultural Supply Chains," Trinity Economics Papers tep1316, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep1316
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    File URL: https://www.tcd.ie/Economics/TEP/2016/TEP1316.pdf
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    References listed on IDEAS

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    1. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    2. Douglas Gale & Robert W. Rosenthal, 1994. "Price and Quality Cycles for Experience Goods," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 590-607, Winter.
    3. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 659-679.
    4. Fafchamps, Marcel & Gabre-Madhin, Eleni Z., 2006. "Agricultural markets in Benin and Malawi," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 1(1), pages 1-28, November.
    5. Michael H. Riordan, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 265-279.
    6. Marcel Fafchamps & Ruth Vargas Hill & Bart Minten, 2008. "Quality control in nonstaple food markets: evidence from India," Agricultural Economics, International Association of Agricultural Economists, vol. 38(3), pages 251-266, May.
    7. Rachel E. Kranton, 2003. "Competition and the Incentive to Produce High Quality," Economica, London School of Economics and Political Science, vol. 70(279), pages 385-404, August.
    8. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
    9. Robinson, Elizabeth J. Z. & Kolavalli, Shashi L., 2010. "The case of tomato in Ghana: Marketing," GSSP working papers 20, International Food Policy Research Institute (IFPRI).
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    Cited by:

    1. Abate, Gashaw T. & Bernard, Tanguy & de Janvry, Alain & Sadoulet, Elisabeth & Trachtman, Carly, 2021. "Introducing quality certification in staple food markets in Sub-Saharan Africa: Four conditions for successful implementation," Food Policy, Elsevier, vol. 105(C).

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    More about this item

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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