Information Processing and Quality Choice: The Case of Organic Milk

40 Pages Posted: 8 Jul 2021

See all articles by Michael DeDad

Michael DeDad

The University of Akron - Department of Economics

Volodymyr Lugovskyy

Indiana University Bloomington - Department of Economics

Emerson Melo

Indiana University Bloomington

Alexandre Skiba

University of Wyoming - College of Business - Department of Economics and Finance

Date Written: June 27, 2021

Abstract

Analyzing differences in the quality of information-intensive goods may require information processing from consumers. Focusing on the differences between organic and conventional milk, we propose analyzing such markets using a tractable micro-founded discrete choice framework with Rational Inattention, non-homothetic preferences, and heterogeneous consumers. We predict theoretically and confirm empirically that consumers with higher efficiency of information processing (EIP) choose higher quality goods than those with lower EIP; however, this does not hold for poorer consumers for whom budget constraints are binding. Similarly, choosing higher quality increases with income, but the effect is weak without sufficiently high EIP.

Keywords: Information Processing, Rational Inattention, Heterogenous Consumers, Organic Milk

Suggested Citation

DeDad, Michael and Lugovskyy, Volodymyr and Melo, Emerson and Skiba, Alexandre, Information Processing and Quality Choice: The Case of Organic Milk (June 27, 2021). Available at SSRN: https://ssrn.com/abstract=3874890 or http://dx.doi.org/10.2139/ssrn.3874890

Michael DeDad

The University of Akron - Department of Economics ( email )

College of Business
259 South Broadway Street
Akron, OH 44325-1908
United States
(330) 972-7421 (Phone)

HOME PAGE: http://www.uakron.edu/cba/about-us/directory/profile-detail-dm.dot?u=mdedad

Volodymyr Lugovskyy (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Emerson Melo

Indiana University Bloomington ( email )

Dept of Economics
100 South Indiana Ave.
Bloomington, IN 47405
United States

Alexandre Skiba

University of Wyoming - College of Business - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States

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