Is there any premium for unobservable quality?: a hedonic price analysis of the Malagasy rice market

Sakurai Takeshi, Tsilavo Ralandison, Kazushi Takahashi, Yutaka Arimoto and Hisaki Kono

No 504, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper examines if consumers pay a premium for unobservable quality in the absence of quality standards and/or quality grading systems and, if so, how they assess that unobservable quality, using a rice retail market in Madagascar as an example. In Madagascar, the lack of quality standards and/or grading systems for rice makes is considered to be one of the causes of the rice market's spatial disintegration. Thus, quality standards and grading systems will be necessary to increase the market's efficiency. We hypothesize that consumers and retailers use product origin and rice name as observable indictors of unobservable quality and test the hypothesis using hedonic price regressions. We find that the interaction terms of product origin and rice name significantly affect the price after controlling for both observable quality and spatial and temporal price variation, but that the contribution of product origin and rice name to rice price variation is smaller than spatial and temporal factors. We thus conclude that consumers pay a premium for unobservable quality throughout Madagascar. This finding implies that quality standards and/or grading systems will work in the Malagasy market and that improving market infrastructure such as roads and storage will make them even more effective.

Keywords: Madagascar; Rice; Market; Retail trade; Quality control (search for similar items in EconPapers)
JEL-codes: O13 Q13 (search for similar items in EconPapers)
Date: 2015-03-01
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (2)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 504. 2015-03-01

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