Voluntary Certification of Agricultural Products in Competitive Markets: The Consideration of Boundedly Rational Consumers

Xujin Pu and Huanzhen Zhang
Additional contact information
Xujin Pu: Business School, Jiangnan University, 1800 Lihu Avenue, Wuxi 214122, China
Huanzhen Zhang: Business School, Jiangnan University, 1800 Lihu Avenue, Wuxi 214122, China

Sustainability, 2016, vol. 8, issue 9, 1-13

Abstract: Market competition creates strategic incentives for firms to communicate private information about their own product quality through certification. Although voluntary certification has recently gained importance in the agricultural industry, information asymmetry is not always completely addressed. This study analyzes how the relative proportion of boundedly rational consumers in the market influences the effectiveness of voluntary certification mechanisms by using a duopoly game model of high- and low-quality firms. The presented results show that a change in the proportion of boundedly rational consumers leads to different certification behaviors and a different market equilibrium. We also find that the existence of boundedly rational consumers is an important factor in the failure of voluntary certification. Indeed, when the relative proportion of such consumers is very high, voluntary certification is ineffective at improving market efficiency.

Keywords: voluntary certification; agricultural product market; bounded rationality (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2071-1050/8/9/953/pdf (application/pdf)
https://www.mdpi.com/2071-1050/8/9/953/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:8:y:2016:i:9:p:953-:d:78512

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().