Measuring honesty and explaining adulteration in naturally occurring markets

Rustagi, Devesh; Kroell, Markus

Abstract

There is astounding variation in product quality sold in markets even when quality is difficult to ascertain and rules are poorly enforced. We investigate whether sellers differ in innate honesty (incur private cost to provide good quality) and whether this explains the variation in quality. Our study takes place in milk markets in India, where milkmen collude on price, customer rarely switch, and it is difficult to establish reputation. We invite milkmen to take part in a novel behavioral experiment to measure dishonesty. We then measure quality objectively as the percentage of water added to a liter of milk sold to customers. Our results show that dishonest milkmen add significantly more water to milk. Evidence from milk-testing tournament confirms that milk quality is difficult to verify. These results suggest that some sellers are willing to forego monetary gains to provide good quality in return for utility from being honest, even in an environment that encourages cheating.

Citation

Rustagi, D., & Kroell, M. (2022). Measuring honesty and explaining adulteration in naturally occurring markets. Journal of Development Economics, 156, Article 102819. https://doi.org/10.1016/j.jdeveco.2022.102819

• Journal Article Type: Article
• Acceptance Date: Jan 12, 2022
• Online Publication Date: Feb 5, 2022
• Publication Date: 2022-05
• Deposit Date: Mar 1, 2022
• Publicly Available Date: Feb 6, 2024
• Journal: Journal of Development Economics
• Print ISSN: 0304-3878
• Electronic ISSN: 1872-6089
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 156
• Article Number: 102819
• DOI: https://doi.org/10.1016/j.jdeveco.2022.102819
• Keywords: Economics and Econometrics; Development
• Public URL: https://nottingham-repository.worktribe.com/output/7531363
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0304387822000037?via%3Dihub