Reputation, Honesty, and Cheating in Informal Milk Markets in India

Posted: 8 Jun 2017

See all articles by Markus Kröll

Markus Kröll

Goethe University Frankfurt - Department of Management and Applied Microeconomics

Devesh Rustagi

Date Written: June 7, 2017

Abstract

Sellers display astounding differences in their cheating behavior, even in developing countries with weak enforcement of rules. Using the context of informal milk markets in India, we examine the role of reputation and norms of honesty as potential explanations. Our results show that individuals cannot verify milk quality, which weakens the scope of reputation-based mechanisms. But a strong correlation exists between milk quality and norms of honesty, measured using a novel behavioral experiment. Price collusion allows for the coexistence of honest and dishonest milkmen within a market. Norms of honesty can mitigate market inefficiency under the right institutional environment.

Keywords: informal sector, reputation, norms of honesty, milk markets, India

JEL Classification: C93, D06, D08, O13, Q01

Suggested Citation

Kröll, Markus and Rustagi, Devesh, Reputation, Honesty, and Cheating in Informal Milk Markets in India (June 7, 2017). SAFE Working Paper No. 134. Available at SSRN: https://ssrn.com/abstract=2982365 or http://dx.doi.org/10.2139/ssrn.2982365

Markus Kröll

Goethe University Frankfurt - Department of Management and Applied Microeconomics ( email )

Germany
+496979834827 (Phone)

No contact information is available for Devesh Rustagi

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