Impacts of Minimum Quality Standards Imposed Through Marketing Orders or Related Producer Organizations

We analyze the impacts of minimum quality standards (MQS) imposed by producers acting collectively through a producer organization, such as a marketing order. MQS imposed in a competitive market can never enhance social welfare because in general an MQS creates two deadweight losses--one due to inefficient enhancement of product quality and a second due to wastage of the low-quality product. Any MQS that a competitive industry implements based upon a profit criterion causes all consumers in the market to be harmed. However, an MQS may be preferred relative to supply control as a second-best instrument for transferring income to producers. Copyright 2009, Oxford University Press.