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Abstract
Geographical Indications (GIs) for products (Basmati rice, Champagne sparkling wine,
Antigua coffee, etc.) were regulated at the international level in 1995 (WTO TRIPS
Agreement, Part II, Section 3). This paper sets a general framework of analysis for GI-labeled
goods, based on the modeling of a GI as a club asset (partial excludability and no rivalry in
benefits to the firms that lawfully label their products with the GI). A model of club
reputation is developed which includes Shapiro (1982) and Winfree & McCluskey (2005) as
special cases. Reputation is assumed to be traceable through the GI label; quality is
endogenously determined at the firm level, with reputation as the state variable. In contrast
with previous research, it is shown that the TRIPS legal construct around GIs is potentially
compatible with an equilibrium involving a self-fulfilling level of quality (and reputation) that
is above the minimum, under the condition that the GI club has a reduced membership of
firms. However, the establishment of a minimum level of quality is still the first best policy to
improve firm profits. It is also shown that under bottom-up firm-driven processes of club
formation (maximization of firm profits), firm levels of quality and profits are higher, and
levels of club membership are lower, than under top-down State-driven processes
(maximization of club profits). When quality is taken as exogenous, the model evolves into a
static partial equilibrium framework, where the GI is subject to potential dilution phenomena
due to membership crowding and oversupply. GI-related expenses, output, membership, and
club finance are all determined simultaneously. It is shown that under partial rivalry in
benefits, both output and membership are reduced, in an equilibrium that approaches the
cartel equilibrium. State subsidization is shown to lead to potential inefficiencies stemming
from price and incentive distortions. The geographical confinement of output is shown to
impact factor prices and quantities. Finally, issues concerning potential monopsonistic
concerns and the replication of GIs are briefly sketched.