Optimal Quality Inspections of Agricultural Foods in Farm-to-Consumer Direct Selling: Game-Based Approach

Farm-to-Consumer Direct Selling (F۲C) programs allow consumers to pre-order a share of a farm’s produce so that the farmer benefits from guaranteed sales at a pre-agreed price, while the consumer benefits from receiving produce with a certain quality and the knowledge that they are supporting a local farmer. However, agricultural foods are a type of credence goods, and consumers have to trust that the supplied produce is indeed, as claimed, cultivated on the farm in accordance with the agreed cultivation practices, such as organic. In this study, we attempt to provide inspection bodies with a strategic inspection rate that respects the quality commitments of farms and examine how the inspection strategy influences consumers’ benefits. We derive the equilibrium decisions of inspection bodies and farms based on a game model, using a closed-form analysis to develop the optimal inspection rate at which a farm maintains its commitment to food quality. Specifically, the inspection rate increases with food quality when the inspection cost is below a certain threshold. However, inspection bodies tend to dispense when the inspection cost exceeds a specified value. The consumer surplus in quality increases with the inspection rate when the inspection rate is below a certain threshold. However, when the inspection rate exceeds the threshold, additional inspections do not have marginal effects on consumer surplus in quality.

Keywords:

Food quality , Inspection rate , Quality commitment.