Agricultural Production Clubs: Viability and Welfare Implications

Consumers are in general less informed than producers about the quality of agricultural goods. To reduce he information gap, consumers can rely on standards (e.g., certification) that ensure quality and origin of the goods. These costly standards can be adopted by a group of producers of high-quality goods. We study the formation of such a group that we model as a club. We first investigate under what circumstances a club of a given size is desirable for producers, and for society. We then analyze the optimal size of the club when there exists a direct barrier to entry, and when there is no barrier. We find that for intermediate values of certification costs, the industry and a club of a given size of certified producers have divergent incentives. Furthermore, if barriers to entry are allowed, an optimal size of club exists, which allows some revelation of information. In the absence of barrier to entry, it is less likely that a club will emerge.


Issue Date:
2006
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/18606
Total Pages:
33
Series Statement:
CARD Working Paper 06-WP 431




 Record created 2017-04-01, last modified 2018-01-22

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