Quality Incentives in Informal Markets: The Case of Ecuadorian Cocoa

Pilar Jano and Brent Hueth ()

No 150378, 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. from Agricultural and Applied Economics Association

Abstract: We investigate the economic importance of implicit quality incentives in an agricultural market that lacks the institutional capacity for measuring quality verifiably. We measure the magnitude of implicit price premiums for quality, and we distinguish empirically between hedonic-pricing and implicit-contracting motivations for observed incentives. We find price premiums comparable in magnitude to premiums observed in other agricultural markets where quality is measured verifiably. Premiums are highest for relatively low-value but highly-informative quality characteristics, and buyers who are informationally close to farmers implicitly reward actions that affect unobservable quality characteristics. We conclude that implicit contracting is used to provide quality incentives comparable in magnitude to what is provided through more explicit means in formally organized markets.

Keywords: Crop Production/Industries; Demand and Price Analysis; International Relations/Trade (search for similar items in EconPapers)
Pages: 42
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea13:150378

DOI: 10.22004/ag.econ.150378

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