Quality Contingent Contracts : Evidence from Tanzania's Coffee Market
The literature on product quality in markets where product attributes are not readily observable indicates that information asymmetries and incentive problems may lead to the under-provision of quality. This paper contributes to this literature by...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2012/08/16603775/quality-contingent-contracts-evidence-tanzanias-coffee-market http://hdl.handle.net/10986/12018 |
| Summary: | The literature on product quality in
markets where product attributes are not readily observable
indicates that information asymmetries and incentive
problems may lead to the under-provision of quality. This
paper contributes to this literature by estimating the
effects of village-level contractual arrangements on
producer incomes and on quality enhancing production
practices. Three contract types are studied: spot contracts,
contingent contracts with product grading and contingent
contracts without product grading. To do this, the study
uses original data from a survey of 450 coffee producers in
Tanzania's coffee market that take advantage of
contractual variation in the Kilimanjaro region. The results
indicate that coffee contracts that include village-based
product grading have a large positive effect on producer
incomes, and that the grading effect is associated with
production practices that enhance quality. The results also
indicate that cooperative membership has no significant
effect on producer incomes. |
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