Jérémy Do Nascimento Miguel
(Bordeaux School of Economics)
will give a presentation on
Fixing markets for unobservable quality, Lab-in-the-field evidence from rural wheat traders in Ethiopia
Abstract: Enhancing the access of smallholder farmers to profitable value chains can improve their incomes and overall well-being. This requires farmers to adopt new practices and technologies that raise productivity and improve product quality. We focus on the role of the intermediating sector, particularly on the role of traders’ expectations regarding the quality of produce supplied by farmers, and analyze incentives for farmers to produce high-quality output. Our theoretical model demonstrates how quality expectations can be a self-fulfilling prophecy—perpetuating either bad equilibria (low quality, low prices) or opening up good ones (high quality, high prices)—and how an institutional innovation such as the introduction and promotion of certification services can set in motion a development trajectory from the bad to the good steady state. We conduct a lab-in-the-field experiment among wheat traders in Ethiopia to study how “demand” for high quality crops is mediated by expectations and certification. Our experimental results provide mixed support for theoretical predictions. While trader expectations regarding farmer supply matter for trader investments, we also find that traders fail to optimally respond to new opportunities created by certification.
Joint work with Gashaw T. Abate (IFPRI), Tanguy Bernard (Bordeaux School of Economics), Erwin Bulte (Univ. Wageningen), and Elisabeth Sadoulet (UC Berkeley).