Quality and self-regulation in agricultural markets: how do Producer Organisations make the rules?

The paper focuses on Producer Organisations (POs) and studies the interaction of asymmetric information and the democratic process in the quality choices of a group of heterogeneous producers facing an opportunity to gain from their collective capacity to establish a reputation for their products. It makes the PO's choice of remuneration scheme endogenous and distinguishes between a constitutional and a working phase. It compares different equilibria, according to which type of producer is in the majority, and it finds that, irrespective of the constitutional rules adopted, the quality level provided by the group is higher or lower than the first-best according to the producers in the majority.