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Moral hazard, vertical integration, and public monitoring in credence goods

Author

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  • Henrik Vetter
  • Kostas Karantininis

Abstract

Moral hazard is a problem in markets where the qualities or characteristics of products cannot be verified with certainty by consumers. Here we demonstrate that vertical integration is one possible way of dealing with such problems. When the saving of monitoring costs is the driving force behind vertical integration, public monitoring freely available to the market may prevent vertical integration. Copyright 2002, Oxford University Press.

Suggested Citation

  • Henrik Vetter & Kostas Karantininis, 2002. "Moral hazard, vertical integration, and public monitoring in credence goods," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 29(2), pages 271-279, June.
    • Handle: RePEc:oup:erevae:v:29:y:2002:i:2:p:271-279
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    Cited by:

    1. Goldsmith, Peter D. & Turan, Nesve A. & Gow, Hamish R., 2004. "Firms, Incentives, And The Supply Of Food Safety: A Formal Model Of Government Enforcement," 2004 Annual meeting, August 1-4, Denver, CO 20343, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Rommel, Jens & Sagebiel, Julian & Müller, Jakob R., 2016. "Quality uncertainty and the market for renewable energy: Evidence from German consumers," Renewable Energy, Elsevier, vol. 94(C), pages 106-113.
    3. Ivanova, Daniela, 2018. "Сертификацията – Инструмент За „Зелени“ Комуникации В Глобалната Търговия [Certification - a tool for “green” communications in global trade]," MPRA Paper 96038, University Library of Munich, Germany.
    4. Chengyan Yue & Terrance M. Hurley & Neil Anderson, 2011. "Do native and invasive labels affect consumer willingness to pay for plants? Evidence from experimental auctions," Agricultural Economics, International Association of Agricultural Economists, vol. 42(2), pages 195-205, March.
    5. Fabrice Etilé & Sabrina Teyssier, 2012. "Signaling Corporate Social Responsibility: Third-Party Certification vs. Brands," PSE Working Papers halshs-00736551, HAL.
    6. Pascucci, Stefano & Cicatiello, Clara & Franco, Silvio & Pancino, Barbara & Davide, Marino, 2011. "Back to the Future? Understanding Change in Food Habits of Farmers' Market Customers," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 14(4), pages 1-22, November.
    7. Ding, Huiping & Fu, Yanan & Zheng, Lucy & Yan, Zhu, 2019. "Determinants of the competitive advantage of dairy supply chains: Evidence from the Chinese dairy industry," International Journal of Production Economics, Elsevier, vol. 209(C), pages 360-373.
    8. Felicetta Carillo & Francesco Caracciolo & Luigi Cembalo, 2017. "Do durum wheat producers benefit of vertical coordination?," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 5(1), pages 1-13, December.
    9. Janina Grabs & Graeme Auld & Benjamin Cashore, 2021. "Private regulation, public policy, and the perils of adverse ontological selection," Regulation & Governance, John Wiley & Sons, vol. 15(4), pages 1183-1208, October.
    10. Lombardi, Alessia & Pascucci, Stefano & Cembalo, Luigi & Dentoni, Domenico, 2012. "Governance Mechanisms in Food Community Networks," 2012 International European Forum, February 13-17, 2012, Innsbruck-Igls, Austria 144980, International European Forum on System Dynamics and Innovation in Food Networks.
    11. Sanxi Li & Xinyu Li & Zhan Qu, 2023. "Does vertical integration increase product quality?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(1), pages 69-80, April.
    12. Koji Domon & Alessandro Melcarne & Giovanni B. Ramello, 2022. "Fake & original: the case of Japanese food in Southeast Asian countries," European Journal of Law and Economics, Springer, vol. 54(2), pages 327-347, October.
    13. Carbone, Anna & Gaito, Marco & Senni, Saverio, 2007. "Consumers’ Buying Groups in the Short Food Chains: Alternatives for Trust," 2007 1st Forum, February 15-17, 2007, Innsbruck, Austria 6594, International European Forum on System Dynamics and Innovation in Food Networks.
    14. Giorgos N. Diakoulakis & Athanasios Kampas, 2020. "A goal-framing approach to green payments' efficiency when vertical integration is an option," Working Papers 2020-1, Agricultural University of Athens, Department Of Agricultural Economics.
    15. Mitchell, Tara, 2022. "Paying for Unobservable Quality: Moral Hazard and the Challenges of Maintaining Quality along the Supply Chain," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 47(2), May.
    16. Wandel, Jürgen, 2011. "Integrierte Strukturen im Agrar- und Ernährungssektor Russlands: Entstehungsgründe, Funktionsweise, Entwicklungsperspektiven und volkswirtschaftliche Auswirkungen. Band I und II," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 63, number 63.
    17. Gabriele Jahn & Matthias Schramm & Achim Spiller, 2005. "The Reliability of Certification: Quality Labels as a Consumer Policy Tool," Journal of Consumer Policy, Springer, vol. 28(1), pages 53-73, December.
    18. Nicolás Depetris-Chauvin & Marta Fernández Olmos & Juan Carlos Hallak & José Santiago Mosquera, 2023. "Quality, Vertical Integration and Adaptability," Working Papers 221, Red Nacional de Investigadores en Economía (RedNIE).
    19. repec:hal:pseose:halshs-00736551 is not listed on IDEAS
    20. Thomas Dietz & Janina Grabs & Andrea Estrella Chong, 2021. "Mainstreamed voluntary sustainability standards and their effectiveness: Evidence from the Honduran coffee sector," Regulation & Governance, John Wiley & Sons, vol. 15(2), pages 333-355, April.
    21. Crespi, John M. & Marette, Stephan, 2003. "Some Economic Implications Of Public Labeling," Journal of Food Distribution Research, Food Distribution Research Society, vol. 34(3), pages 1-12, November.
    22. Huashu Wang & Zhenyi Li & H. Holly Wang, 2022. "Does Backward Integration Improve Food Safety of the Tea Industry in China in the Post-COVID-19 Era?," Sustainability, MDPI, vol. 14(4), pages 1-15, February.
    23. Lippert, Christian, 2005. "Is Certification a Promising Way to Ensure Sustainable Resource Use? An Analysis Based on the Concept of 'Self-Enforcing Contracts'," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24563, European Association of Agricultural Economists.
    24. Hussein, Mohamud & Martinez, Marian Garcia & Fearne, Andrew, 2013. "On The Efficiency of Management-Based Regulation: A Case Study of the UK Poultry Inspection Regime," 87th Annual Conference, April 8-10, 2013, Warwick University, Coventry, UK 158856, Agricultural Economics Society.
    25. Lippert, Christian, 2009. "Fraud and free riding in tropical forests – on the potential for certification to enforce sustainable resource use indirectly," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 58(03), pages 1-11, April.

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