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Measuring honesty and explaining adulteration in naturally occurring markets

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  • Rustagi, Devesh
  • Kroell, Markus

Abstract

There is astounding variation in product quality sold in markets even when quality is difficult to ascertain and rules are poorly enforced. We investigate whether sellers differ in innate honesty (incur private cost to provide good quality) and whether this explains the variation in quality. Our study takes place in milk markets in India, where milkmen collude on price, customer rarely switch, and it is difficult to establish reputation. We invite milkmen to take part in a novel behavioral experiment to measure dishonesty. We then measure quality objectively as the percentage of water added to a liter of milk sold to customers. Our results show that dishonest milkmen add significantly more water to milk. Evidence from milk-testing tournament confirms that milk quality is difficult to verify. These results suggest that some sellers are willing to forego monetary gains to provide good quality in return for utility from being honest, even in an environment that encourages cheating.

Suggested Citation

  • Rustagi, Devesh & Kroell, Markus, 2022. "Measuring honesty and explaining adulteration in naturally occurring markets," Journal of Development Economics, Elsevier, vol. 156(C).
  • Handle: RePEc:eee:deveco:v:156:y:2022:i:c:s0304387822000037
    DOI: 10.1016/j.jdeveco.2022.102819
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    More about this item

    Keywords

    Honesty; Adulteration; Milk markets; Asymmetric information; Measurement error; India;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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