Improving Food Quality through Institutional Innovations: Using a Free‐Rider Approach for Collective Action

Abstract

This paper outlines how a team work approach, recently suggested in institutional economics to overcome the problem of externalities, can be used to promote better food quality. Cost sharing as “team work” is considered a novel institution to improve food quality by giving incentives to overcome the public good character of quality. We translate the approach from negative to positive externalities. Hereby: (1) We make a reference to the current state of the discussion on how food quality depends on efforts of a food industry to get a better image and discuss how much need there is to improve quality. (2) An outline of a mathematical approach of a “team work” is presented in the provision of quality as a positive externality  and (3) the approach is adapted to a likely team building effort in a food industry. Finally some remarks are made how to stimulate a process of team building and the role of a government is addressed. At the core of the paper we see the argument that free riding on quality can be avoided if collective actions or team building processes occur in a community. A team is modeled as partnership of producers in which costs for quality improvement are shared.