Angelo Zago

Traditionally, the main economic analysis of agricultural policies has centered on quantity, price, and risk implications of different policies. A growing part of the literature now deals with quality issues. A market failure for quality provision is often the starting point for the analysis of some form of public regulation or for granting Producers’ Organizations authority over quality regulation. Along these lines, in 1996 the European Union introduced a reform of the fruit and vegetable common European market allowing these groups of producers to plan production in order to meet demand, decide and enforce quality standards, help reducing production costs and promote environmental-friendly technology adoption. Other examples are common all over the world, for instance in Canada for maple syrup producers; in Colombia, for coffee producers; in Italy and France, for wine producers. In this dissertation I analyze the quality choices of a group of producers. In the first essay I analyze some of the problems of the self-regulation by a group of producers. Using mechanism design, I study the interaction of asymmetric information and the democratic process in the quality choices of a group of heterogenous producers. With a simple model of adverse selection I present the pricing rules and the quality provision in a group of producers facing an opportunity to gain from their collective capacity to establish a reputation for their quality products. In the essay I make the choice of the PO`s pricing mechanism endogenous, and I compare different equilibria, according to which type of producer is in the majority and to different demand and technology parameter values. I consider a situation in which only one group can be formed. I find an asymmetry in the possible equilibria between the high and the low quality majorities. If market demand and producers differences allow the group to form, the quality level provided by the group with a low quality majority is lower than the first best. In addition, the high quality producers in the minority are left with some rents above their reservation utility. When high quality producers are the majority, two different equilibria may emerge. If demand conditions are favorable and the group not very heterogeneous, the quality level provided by the group is higher than the first best and the minority`s type left with some rents. If demand and group conditions are not very favorable and the group still forms, the quality level provided by the group is the same as in the first best but the low quality producers in the minority are left with no rents. In the second essay I propose a methodology to measure the characteristics and composition of intermediate products, i.e., grapes for wine production, when quality is multidimensional. First, with the methodological contribution, I use a general representation of the technology modeling the quality attributes with a multioutput technology represented with directional distance functions and I construct quality indicators. Second, I characterize the technology by investigating the relationships among the different quality attributes and the production level by a systematic investigation of the disposability properties of the technology, showing that some quality attributes are substitute, while others are complement in production. The quality aggregate measures I propose using directional distance functions may be used to evaluate firms' output taking into account the whole set of quality attributes. In addition, I show how aggregate quality may vary with the production level. Moreover, these aggregates measure can be compared with the standard practice in the industry of using only one attribute, for instance the sugar content. The third essay shows how to design an optimal payment system for a group of producers and how to implement the first best through higher prices for better quality commodities. In the essay I first show how it is possible to implement the first best through higher prices for better quality commodities deriving the optimal pricing schedule. I take into account producers' heterogeneity by modeling inefficiency and illustrating how technical efficiency interacts with producers' ability to produce outputs for a given level of inputs and hence affects revenues. The technology and the technical efficiency of producers are then estimated with a stochastic production function model. The estimation results are then used to simulate the pricing scheme. I show that the pricing scheme depends on the quality-quantity relationship, which varies across cultivars and across years.

Self-regulation, productivity, and non-linear pricing. Three essays on quality production in agricultural markets

ZAGO, Angelo
2006-01-01

Abstract

Traditionally, the main economic analysis of agricultural policies has centered on quantity, price, and risk implications of different policies. A growing part of the literature now deals with quality issues. A market failure for quality provision is often the starting point for the analysis of some form of public regulation or for granting Producers’ Organizations authority over quality regulation. Along these lines, in 1996 the European Union introduced a reform of the fruit and vegetable common European market allowing these groups of producers to plan production in order to meet demand, decide and enforce quality standards, help reducing production costs and promote environmental-friendly technology adoption. Other examples are common all over the world, for instance in Canada for maple syrup producers; in Colombia, for coffee producers; in Italy and France, for wine producers. In this dissertation I analyze the quality choices of a group of producers. In the first essay I analyze some of the problems of the self-regulation by a group of producers. Using mechanism design, I study the interaction of asymmetric information and the democratic process in the quality choices of a group of heterogenous producers. With a simple model of adverse selection I present the pricing rules and the quality provision in a group of producers facing an opportunity to gain from their collective capacity to establish a reputation for their quality products. In the essay I make the choice of the PO`s pricing mechanism endogenous, and I compare different equilibria, according to which type of producer is in the majority and to different demand and technology parameter values. I consider a situation in which only one group can be formed. I find an asymmetry in the possible equilibria between the high and the low quality majorities. If market demand and producers differences allow the group to form, the quality level provided by the group with a low quality majority is lower than the first best. In addition, the high quality producers in the minority are left with some rents above their reservation utility. When high quality producers are the majority, two different equilibria may emerge. If demand conditions are favorable and the group not very heterogeneous, the quality level provided by the group is higher than the first best and the minority`s type left with some rents. If demand and group conditions are not very favorable and the group still forms, the quality level provided by the group is the same as in the first best but the low quality producers in the minority are left with no rents. In the second essay I propose a methodology to measure the characteristics and composition of intermediate products, i.e., grapes for wine production, when quality is multidimensional. First, with the methodological contribution, I use a general representation of the technology modeling the quality attributes with a multioutput technology represented with directional distance functions and I construct quality indicators. Second, I characterize the technology by investigating the relationships among the different quality attributes and the production level by a systematic investigation of the disposability properties of the technology, showing that some quality attributes are substitute, while others are complement in production. The quality aggregate measures I propose using directional distance functions may be used to evaluate firms' output taking into account the whole set of quality attributes. In addition, I show how aggregate quality may vary with the production level. Moreover, these aggregates measure can be compared with the standard practice in the industry of using only one attribute, for instance the sugar content. The third essay shows how to design an optimal payment system for a group of producers and how to implement the first best through higher prices for better quality commodities. In the essay I first show how it is possible to implement the first best through higher prices for better quality commodities deriving the optimal pricing schedule. I take into account producers' heterogeneity by modeling inefficiency and illustrating how technical efficiency interacts with producers' ability to produce outputs for a given level of inputs and hence affects revenues. The technology and the technical efficiency of producers are then estimated with a stochastic production function model. The estimation results are then used to simulate the pricing scheme. I show that the pricing scheme depends on the quality-quantity relationship, which varies across cultivars and across years.
2006
mechanism design; directional distance functions; non linear pricing
Angelo Zago
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11562/244660
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