Improving Food Quality through Institutional Innovations: Using a Free-Rider Approach for Collective Action

This paper applies an innovation from institution economics to agribusiness: profit (cost) sharing as arrangements to promote public good provision. It outlines how a team work approach can be employed to promote food quality. In institutional economics it was recently suggested to use sharing arrangements to overcome the problem of externalities, in particular by using the above mentioned team work approach. Cost sharing as “team work” is analyzed in this paper as a novel institution to improve food quality, then by indirectly creating incentives to overcome the public good character of “quality”. It is assumed that consumers recognize industry quality; not individual by firm in case of asymmetric information. We trans­late a general approach of negative externality to a positive one. (1) We make a reference to the current state of art on how food quality depends on joint efforts of an industry. The aim is to get a better image and discuss the extent to which group efforts are needed to improve quality. (2) We present a mathematical approach on team work for quality. Quality is seen as positive externality and (3) team building is modelled as a likely a process of forming groups sharing efforts in food industries. Finally some remarks are made on how to actively stimulate the needed process of team formation. Also the role of the govern­ment is addressed. At the core of the paper we see the argument that free riding on quality images can be avoided if collective action prevails. A team is modeled as partnership of producers in which costs for image raising are shared. A prerequisite is that economies of scale and jointness in image exist.