The political economy of geographical indications

Despite a burgeoning literature on the economics of Geographical Indications (GIs), few analyses have explored the question of the optimal size of GIs and the role of lobbying in setting the boundaries of a GI. By contrast, historical evidence demonstrates that the emergence and expansion of GI areas has been accompanied by intense lobbying efforts. In this paper, we develop a political economy model to explore the size of GIs. Our model builds on four key aspects of a GI expansion: first, a larger GI area would increase production, thereby depressing prices. Second, a larger GI area potentially leads to a lower average (perceived) quality, which reduces consumer utility and prices. Third, a larger GI area allows producers to engage in better sharing of fixed costs such as marketing expenses. And fourth, the introduction or expansion of a GI area is a political decision, potentially influenced by lobbying. We show that a clear ranking exists of potential outcomes depending on whether governments maximize the welfare of all producers, "insiders" only, or "outsiders" only. However, the relationship between the political equilibrium and the social optimum is ambiguous, as it depends on how consumers' utility is affected by a change in quality. Acknowledgement : The authors wish to thank Martijn Huysmans, Paola Corsinovi, Davide Gaeta, Julian Alston, Stephen T. Ziliak, Erik Schokkaert, Frank Verboven, and Thijs Vandemoortele for stimulating discussions.