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Optimal Quality Assurance Systems For Agricultural Outputs

Author

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  • Carriquiry, Miguel A.
  • Babcock, Bruce A.
  • Carbone, Roxana

Abstract

New quality assurance systems (QASs) are being put in place to facilitate the flow of information about agricultural and food products. But what constitutes a proper mix of public and private efforts in setting up QASs is an unsettled question. A better understanding of private sector incentives for setting up such systems will help clarify what role the public sector might have in establishing standards. We contribute to this understanding by modeling the optimal degree of "stringency" or assurance in a processor's quality control system over procurement of agricultural output when there exists uncertainty about quality. Our model addresses two questions: (1) Should a buyer of agricultural outputs implement a QAS as a way to gain and provide information about product quality to its potential customers? and (2) Given that it is profitable to adopt a QAS, what is the profit-maximizing degree of assurance in the system? We study a particular case in which the input buyer requires its suppliers to implement a given QAS. Increased stringency through the QAS reduces the probability of type I errors of falsely declaring that a product is of high quality and of type II errors of rejecting high-quality output. The optimal degree of assurance balances the marginal cost of increased assurance with the value of reduced type I and type II errors. The model predicts that the optimal degree of assurance depends on (1) the likelihood that the sought-after attribute is discoverable by consumers, (2) the price premium paid for the attribute, (3) the cost of quality control, and (4) the damage caused by false certification. A number of privately developed U.S. QASs are examined to see how well the model predictions are supported.

Suggested Citation

  • Carriquiry, Miguel A. & Babcock, Bruce A. & Carbone, Roxana, 2003. "Optimal Quality Assurance Systems For Agricultural Outputs," Hebrew University of Jerusalem Archive 18450, Hebrew University of Jerusalem.
    • Handle: RePEc:ags:hebarc:18450
    DOI: 10.22004/ag.econ.18450
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    References listed on IDEAS

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    1. Tankam, Chloe & Vollet, Dominique & Aznar, Olivier, 2019. "Entre asymétrie d’information et incertitude partagée. Analyse des systèmes de certification biologique pour le marché domestique kenyan," Économie rurale, French Society of Rural Economics (SFER Société Française d'Economie Rurale), vol. 369(July-Sept).
    2. Carriquiry, Miguel A., 2004. "Guaranteed Tender Beef: Opportunities And Challenges For A Differentiated Agricultural Product," Hebrew University of Jerusalem Archive 18437, Hebrew University of Jerusalem.
    3. Sven Anders & Diogo Souza-Monteiro & Elodie Rouviere, 2010. "Competition and Credibility of Private Third-party Certification in International Food Supply," Post-Print hal-01323238, HAL.
    4. Innes, Brian G. & Kerr, William A. & Hobbs, Jill E., 2007. "International Product Differentiation through a Country Brand: An Economic Analysis of National Branding as a Marketing Strategy for Agricultural Products," Commissioned Papers 6131, Canadian Agricultural Trade Policy Research Network.
    5. Anders, Sven M. & Souza Monteiro, Diogo M. & Rouviere, Elodie, 2007. "Objectiveness in the Market for Third-Party Certification: Does market structure matter?," 105th Seminar, March 8-10, 2007, Bologna, Italy 7894, European Association of Agricultural Economists.
    6. Chloé Tankam & Dominique Vollet & Olivier Aznar, 2019. "Between information asymmetry and shared uncertainty, an analysis of organic certification systems for the Kenyan domestic market [Entre asymétrie d'information et incertitude partagée analyse des systèmes de certification biologique pour le march," Post-Print hal-02534461, HAL.
    7. Sarah Jansen & William Foster & Gustavo Anríquez & Jorge Ortega, 2021. "Understanding Farm-Level Incentives within the Bioeconomy Framework: Prices, Product Quality, Losses, and Bio-Based Alternatives," Sustainability, MDPI, vol. 13(2), pages 1-21, January.
    8. Miguel Carriquiry & Bruce A. Babcock, 2004. "Reputation, Quality Observability, and the Choice of Quality Assurance Systems," Center for Agricultural and Rural Development (CARD) Publications 04-wp373, Center for Agricultural and Rural Development (CARD) at Iowa State University.

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