Welcome back to Module 4 entitled, “Asymmetric Information about Quality”.

My name is “Luisa Menapace” and I am a “Professor for Governance in International

Agribusiness at the Technical University of Munich”.

This module is divided into 2 lessons.

In the first lesson, we have already talked about “Asymmetric Information and Market Failures”.

In this lesson, Lesson 2, we will learn about different product attributes and their classification.

Our learning objective for this lesson is being able to classify product attributes

based on when consumers are able to assess their true qualities.

This means based on the time, for example before or after purchasing a product, when

the asymmetry of information between the consumer and the producer is resolved.

Now, I would like you to think about a situation in which you want to purchase a bottle of wine.

Do you face asymmetric information problems regarding the features of the wine?

Before you continue with this video, I would like you to think about which attributes of

the wine you might be interested in and how to assess them.

In this picture, you see a list of attributes concerning wine that were of interest to my students.

Among others, they mentioned flavor, variety, origin, alcohol content, price, color, organic…

We can distinguish three types of attributes.

First, some of these attributes, like color, can easily be assessed before you purchase the wine.

You can see whether the wine is red or white.

Second, some attributes, like taste, cannot be assessed before purchase, but rather after

purchase, once you have tried the wine.

Third, some attributes, like organic, cannot be directly assessed neither before nor after the purchase.

You rather have to rely on the claim of the producer or on a certification that might be noted on the bottle.

The three types of attributes are called respectively, search, experience and credence attributes.

Their classification dates back to the seventies, but it is still relevant today to understand

asymmetric information problems regarding quality.

Search attributes are attributes that you can fully perceive and assess before purchase,

or before entering a contract or a transaction.

Inspection of the attributes (e.g., size, colour) before purchase provides the needed

information for the buyer for the quality assessment.

With experience attributes, buyers can assess their quality only after purchasing the good by consuming it.

Finally, a consumer is not able to directly ascertain credence attributes.

Even post-consumption, environmental characteristics of a good wine are very hard to assess.

Process-attributes (for example, produced without child labour) are also typically not verifiable by the consumer.

Likewise, attributes with potential long-run health effects are also difficult to ascertain by the consumer.

Note that this classification in search, experience and credence attributes can be used also to classify goods and not just attributes.

In general, goods are characterized by a variety of attributes across these three categories.

Nevertheless, it is often the case that the attributes of interest to a consumer fall predominantly in one category only.

In the case of food and agricultural products, we are often concerned either with experience

attributes (in particular, with their taste) or with credence attributes (in particular,

their production process, their environmental features or their origin).

It might already be clear to you that asymmetric information problems are particularly important

for experience and credence attributes.

In the next module we will discuss market solutions for information problems that apply

to experience attributes (in this case the solutions are based on the concept of firm reputation),

and for credence attributes (in this case the solution concepts are based on certification by a trusted public body, like the government).

With this slide we conclude the second lesson – Product Attributes and their Classification -

of Module 4 on Asymmetric Information about Quality.

Thanks for being with me in this lesson. I will see you in Lesson 1 of Module 5 titled “Labels as a Tool to resolve Market Failures”.

Product Attributes and their Classification

The Economics of Agro-Food Value Chains

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