Wastewater irrigation, unobservable food quality and the efficiency of local food markets

M.F. Gengenbach, H.P. Weikard

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)

Abstract

Food irrigated with untreated wastewater is considered low quality because of health hazards that they can produce. When consumers cannot distinguish food qualities, asymmetric information threatens the efficiency of local food markets. We examine in a sequential game whether prices can credibly signal quality when farmers face production constraints due to the allocation of scarce water. Besides inefficient pooling equilibria and separating equilibria with distorted prices, we surprisingly find efficient equilibria with undistorted prices if the water allocation to wastewater irrigated agriculture is large. We conclude that water allocation may have a crucial impact on the functioning of the market
Original languageEnglish
Pages (from-to)27-49
JournalEuropean Review of Agricultural Economics
Volume37
Issue number1
DOIs
Publication statusPublished - 2010

Keywords

  • product quality
  • advertising signals
  • adverse selection
  • price
  • oligopoly
  • equilibrium

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