Incentive Structures: A Formal Model and Empirical Test

• In Event: 463 - Regular Session. Economic Sociology 4

Abstract

This article offers an empirically tractable model of how quality compe- tition motivates producers to bring products of particular qualities to market. Quality is an abstract property of products which affects the prices that buy- ers are willing to pay for otherwise comparable goods and services. Perceived differences in quality that buyers are willing to remunerate establish a quality order of differentially coveted market niches for producers to occupy. Together, these niches set in place the incentive structure of the market. Depending upon their position in the market, producers are motivated to either bolster or subvert the status quo. A case study from the wine industry presents empirical sup- port for the claim that markets incentivize their participants depending on their position in the quality order of the markets they are a part of.

Author

• Malte Doehne, University of Zürich (UZH)