PRODUCER ORGANIZATIONS AND SELF-REGULATION IN AGRICULTURAL MARKETS

The analysis proposed in this paper is concerned with the welfare effects of self-regulation by Producer's Organizations (PO) as an alternative to market or public intervention. Using the advances of the economics of incentives, it studies the interaction of asymmetric information and the democratic process in the quality choices of a group of heterogenous producers. With a simple model of adverse selection it presents the pricing rules and the quality provision in a group of producers facing an opportunity to gain from their collective capacity to establish a reputation for their quality products.This paper explicitly considers the democratic process through which quality-based reward schemes are decided upon and enforced in the PO. It distinguishes between a constitutional phase, in which each potential participant votes on whether to form a PO and the rules by which the PO will be run, and a working phase, in which the rules, including quality regulation, are enforced by the PO.