The economics of geographical indications (GIs) is assessed within a vertical product differentiation framework that is consistent with the competitive structure of agriculture. It is assumed that certification costs are needed for GIs to serve as (collective) credible quality certification devices, and production of high‐quality product is endogenously determined. We find that GIs can support a competitive provision of quality and lead to clear welfare gains, although they fall short of delivering the (constrained) first best. The main beneficiaries are consumers. Producers may also accrue some benefit if production of the high‐quality products draws on scarce factors that they own.
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One of the most commonly used specifications in applied demand analysis is the almost ideal (AI) demand system proposed by Deaton and Muellbauer. A primary reason for the popularity of this model is that, while satisfying a number of desirable properties, it can be approximated at the estimation stage by a linear form. This linear AI model specification typically utilizes a "Stone" price index. Because this linear AI model is not itself derived from a well-specified representation of preferences, this system is of interest only as an approximation to the (integrable) nonlinear AI model.Hence, it is important to ensure good approximation properties for the linear AI model. Unfortunately, as this paper will show, such approximation properties may be seriously affected by the fact that the Stone index is not invariant to the (arbitrary) choice of units of measurement for prices and quantities.
AI and Linear AI Demand SystemsDeaton and Muellbauer's AI demand system can be written in share form as Giancarlo Moschini is associate professor of economics, Iowa State University.
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A partial-equilibrium, two-country model is developed to analyze implications from the introduction of genetically modified (GM) products. In the model, innovators hold proprietary rights, farmers are (competitive) adopters, some consumers deem GM food to be inferior in quality to traditional food, and the mere introduction of GM crops affects the costs of non-GM food (because of costly identity preservation). Among the results derived, it is shown that, although GM innovations have the potential to improve efficiency, some groups can be made worse off. Indeed, it is even possible that the costs induced by GM innovations outweigh the efficiency gains. Copyright 2004, Oxford University Press.
We study firm reputation as a mechanism to assure product quality in perfectly competitive markets in a context in which both certification and trademarks are available. Shapiro's (1983) model of reputation is extended to reflect both collective and firm-specific reputations, and this framework is used to study certification and trademarks for food products with a regional identity, known as geographical indications (GIs). Our model yields two primary results. First, in markets with asymmetric information and moral hazard problems, credible certification schemes reduce the cost of establishing reputation and lead to welfare gains compared to a situation in which only private trademarks are available. Hence, certification improves the ability of reputation to operate as a mechanism for assuring quality. Second, the actual design of the certification scheme plays an important role in mitigating informational problems. From a policy perspective, our results have implications for the current debate and negotiations on GIs at the World Trade Organization and the ongoing product quality policy reform within the European Union. With regard to the instrument of choice to provide intellectual property protection for GIs, our model favors a sui generis scheme based on appellations over certification marks. Finally, our model supports the validity of the traditional specialities guaranteed scheme of the European Union as an instrument for the provision of high-quality products that are not linked to a geographic area.
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