Influence of Governance Structure on the Effectiveness of Quality Standards: the Case of Geographical Indications
Abstract: This paper analyzes how the governance structure of firms and quality standards interact in order to influence quality performance. Focusing on the wine industry, it first examines how typical agency problems related to the lack of specialization within the co-operative form of governance (versus investor-owned firms) may hinder the delivery of high-quality products. Second, the paper examines how the effectiveness of the quality standards promoted by Geographical Indications (GIs) is contingent on the governance structure of agri-food firms. The results show that although co-operative structures significantly lower the final quality of wine, this disadvantage is significantly reduced when producers are certified under the most stringent GIs (i.e., Qualified Designations of Origin, QDO). In contrast, the stricter norms and requirements of the QDO do not influence quality performance within the investor-owned firms. Thus, the paybacks of the quality standards promoted by the GIs depend ultimately on the specific form of governance adopted by the producers.