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Impact of Third-Party Enforcement of Contracts in Agricultural Markets - A Field Experiment in Vietnam

  • Saenger, Christoph
  • Torero, Maximo
  • Qaim, Matin

We study the effect of alleviating information asymmetry regarding product quality that is widespread in developing-country agricultural markets. Opportunistic buyers may underreport quality levels back to farmers to reduce the price they have to pay. In response, farmers may curb investment, negatively affecting farm productivity. In an experiment, we entitle randomly selected smallholder dairy farmers in Vietnam to independently verify milk testing results. Treatment farmers use 13 percent more inputs and also increase their output. We show that the buying company had initially not underreported product quality, which is why third-party monitoring led to a Pareto improvement in the supply chain.

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Paper provided by Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development in its series Discussion Papers with number 143583.

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Date of creation: Jan 2013
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Handle: RePEc:ags:gagfdp:143583
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Web page: http://www.uni-goettingen.de/globalfood

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