Signaling quality in informal markets. Evidence from an experimental auction in the Sahel

Abstract

This study estimates the extent to which rural consumers in sub-Saharan Africa value quality signals about their food. We tested this by implementing an incentive-compatible Becker-Degroot Marschak auction among consumers in Niger and Northern Nigeria to estimate their willingness to pay (WTP) for cowpea (blackeyed pea) that was stored and sold in an improved grain storage bag that signaled unobservable quality in the form of insecticide-free grain. The improved bag had two inner layers of high-density plastic that created an airtight seal around the grain stored in it. The seal killed insects through suffocation rather than insecticide. The bag also had a branded label from its manufacturer on its outer layer to help distinguish it from a generic single-layer, woven storage bag. We estimated the size of the price differential (premium) that the average consumer placed on unobservable grain quality, as measured through the WTP premium for grain sold in the improved bag with a label. We also estimated the effect that consumers’ previous awareness of the improved bag had on their valuation of observable and unobservable quality. Our results indicated that on average consumers in Niger were willing to pay a 10% premium for cowpea stored and sold in the improved storage bag compared to cowpea of the same observable quality that was sold in a generic woven bag. The same unobservable quality premium was 17% in Nigeria. The results from this study provide evidence that there may be a latent demand for quality proxied by food safety among limited resource people in sub-Saharan Africa and that improved products with branded labels can potentially provide a quality signal to the market.