This thesis is comprised of four essays on the economics of certification to agricultural standards in developing countries. It generates new evidence on the relationship between risk and certification.
The first essay builds a theoretical framework to understand the relationship between risk aversion and certification to agricultural standards. In the presence of uncertainty over the proportion of their produce that will be rejected by consumers, results indicate that a relatively risk-averse population of farmers will tend to adopt a high-quality standard in greater numbers. However, analysis suggests that the relationship is sensitive to the relative profitability of adoption, the degree of consumer differentiation between certified and non-certified produce, and the difference in their rejection rates.
The second part of the thesis empirically examines the role of individual risk attitudes in the decision to get certified to an agricultural standard. It investigates the relationship between measured risk aversion and certification status using primary survey and experiment data gathered through field research with Nepali small-scale tea farmers. Results indicate that farmers who are more risk averse have a higher propensity to get certified. These findings provide concrete evidence against previous assumptions that only risk lovers get certified. Instead, they suggest that certification schemes may provide a benefit not yet considered in the literature: that of providing risk-reduction opportunities to risk averse farmers in developing countries.
In the last chapter, the role of certification in sparking processes of institutional change is taken up in a global value chain (GVC) framework. The theoretical insights of institutional economics are combined with the GVC framework to analyze case study data from Nepali small-scale tea farmers. The typology of institutional change in value chains that emerges from this research suggests that agency, organizations, and informal norms affect whether certification yields benefits in a particular place. The research findings illuminate the institutional conditions under which certification can improve welfare in developing countries.