The economics of geographical indications (GIs) is assessed within a vertical product differentiation framework that is consistent with the competitive structure of the agricultural sector with free entry/exit. It is assumed that certification costs are needed for GIs to serve as (collective) credible quality certification devices, and production of high-quality product is endogenously determined. We find that GIs can support a competitive provision of quality that partly overcomes the market failure and leads to clear welfare gains, although they fall short of delivering the (constrained) first-best level of the high-quality good. The main beneficiaries of the welfare gains are consumers. Producers may also accrue some benefit if the production of high-quality products draws on scarce factors that they own.
This working paper was published as Moschini, GianCarlo, Luisa Menapace and Daniel Pick, "Geographical Indications and the Competitive Provision of Quality in Agricultural Markets," American Journal of Agricultural Economics 90 (2008): 794–812, doi:10.1111/j.1467-8276.2008.01142.x.
Moschini, GianCarlo; Menapace, Luisa; and Pick, Daniel, "Geographical Indications and the Competitive Provision of Quality in Agricultural Markets" (2008). CARD Working Papers. 480.