Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune Industry
Grading systems are often introduced to address the classic adverse selection problem associated with asymmetric information about product quality. However, grades are rarely measured perfectly, and adverse selection outcomes may persist due to grading error. We study the effects of errors in gradin...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Western Agricultural Economics Association
1999-07-01
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| Series: | Journal of Agricultural and Resource Economics |
| Subjects: | |
| Online Access: | https://ageconsearch.umn.edu/record/30878 |
| _version_ | 1811273216634650624 |
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| author | James A. Chalfant Jennifer S. James Nathalie Lavoie Richard J. Sexton |
| author_facet | James A. Chalfant Jennifer S. James Nathalie Lavoie Richard J. Sexton |
| author_sort | James A. Chalfant |
| collection | DOAJ |
| description | Grading systems are often introduced to address the classic adverse selection problem associated with asymmetric information about product quality. However, grades are rarely measured perfectly, and adverse selection outcomes may persist due to grading error. We study the effects of errors in grading, focusing on asymmetric grading errors- namely when low-quality product can erroneously be classified as high quality, but not vice versa. In conceptual model, we show the effects of asymmetric grading errors on returns to producers. Application to the California prune industry shows that grading errors reduce incentives to produce more valuable, larger prunes. |
| first_indexed | 2024-04-12T22:54:08Z |
| format | Article |
| id | doaj.art-e53e0abe667f4438bbd63997b95f39b9 |
| institution | Directory Open Access Journal |
| issn | 1068-5502 2327-8285 |
| language | English |
| last_indexed | 2024-04-12T22:54:08Z |
| publishDate | 1999-07-01 |
| publisher | Western Agricultural Economics Association |
| record_format | Article |
| series | Journal of Agricultural and Resource Economics |
| spelling | doaj.art-e53e0abe667f4438bbd63997b95f39b92022-12-22T03:13:15ZengWestern Agricultural Economics AssociationJournal of Agricultural and Resource Economics1068-55022327-82851999-07-01241577910.22004/ag.econ.3087830878Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune IndustryJames A. ChalfantJennifer S. JamesNathalie LavoieRichard J. SextonGrading systems are often introduced to address the classic adverse selection problem associated with asymmetric information about product quality. However, grades are rarely measured perfectly, and adverse selection outcomes may persist due to grading error. We study the effects of errors in grading, focusing on asymmetric grading errors- namely when low-quality product can erroneously be classified as high quality, but not vice versa. In conceptual model, we show the effects of asymmetric grading errors on returns to producers. Application to the California prune industry shows that grading errors reduce incentives to produce more valuable, larger prunes.https://ageconsearch.umn.edu/record/30878adverse selectiongrading errorsproduct qualityprunes |
| spellingShingle | James A. Chalfant Jennifer S. James Nathalie Lavoie Richard J. Sexton Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune Industry Journal of Agricultural and Resource Economics adverse selection grading errors product quality prunes |
| title | Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune Industry |
| title_full | Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune Industry |
| title_fullStr | Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune Industry |
| title_full_unstemmed | Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune Industry |
| title_short | Asymmetric Grading Error and Adverse Selection: Lemons in the California Prune Industry |
| title_sort | asymmetric grading error and adverse selection lemons in the california prune industry |
| topic | adverse selection grading errors product quality prunes |
| url | https://ageconsearch.umn.edu/record/30878 |
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