The Governance of QualityThe Case of the Agrifood Brand Names

Abstract

This paper argues that the governance mechanism is essential for promoting end product quality. Hierarchy facilitates conformance quality but decreases efficiency in terms of incentives. One incentive-enhancing solution might be to move from a hierarchy towards more market-oriented organizational forms. This would solve the problem because, as residual claimants appear along the value chain, they automatically balance both quantity and quality to maximize their residual income. However, such hybrid solutions hinder conformance quality because they do not achieve such efficient coordination as hierarchy. The governance mechanism must therefore be complemented by a set of safeguards designed to improve coordination amongst the parties. Resulting mechanism of governance is more complex but it is also more useful for promoting high quality. We find empirical evidence in a set of international cases of quality brand names. First, we observe that more market-oriented governance mechanisms employ more quality controls to improve coordination than hierarchies. Second, both geographical indicators and quasi-integrations present a larger average price premium than hierarchies.