American Economic Review Vol. 105 No. 5 2015
Journal of Economic Literature
Abstract
The paper analyses the relationship between internal regulation on quality and the market for high quality products in the case of credence goods, focusing on the case in which there is no legal market for low quality and with special attention to food products. In the model expected quality is a function of consumers ’ beliefs about the effectiveness of regulation. Foreign consumers, who cannot observe regulation as closely as domestic ones, may partly base their expectations on the level of development of the exporting country. Low effectiveness, negative stereotype and low consumers ’ trust may cause a failure in the market for high quality, and there may be a trap of underdevelopment and no high quality exports. The main policy implications are that increasing the effectiveness of regulation improves export prospects; standard setting and enforcement by external actors, such as supermarkets or NGOs in the case of certain niche markets is likely to be beneficial. A further implication is that pursuing the harmonization of standards is a better strategy than mutual recognition, since the latter does not address the trust problem between countries with vastly different income levels.
- DOI
- 10.1257/aer.15000012
- Volume
- 105
- Issue
- 5
- Pages
- 711-713
- Language
- en
- Sources
- openalex crossref