Moderating effect of traceability on value chain governance of credence goods: a perspective of the New Institutional Economics framework

Gachukia, Martin Kang’ethe W. (2015): Moderating effect of traceability on value chain governance of credence goods: a perspective of the New Institutional Economics framework. Studies in Agricultural Economics, 117 (2). pp. 102-110. ISSN 2063-0476

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Abstract

This paper reviews the application of New Institutional Economics (NIE) theoretical assumptions and the way they relate to value chain governance and are moderated by traceability and information technology. Through literature review, NIE assumptions are examined by comparing how they are partially mitigated by traceability. The effect of these mitigations is realised in the readjustment of value chain governance typologies to suit lean and more competitive and visible value chains. The findings are based on the fact that information asymmetry, bounded rationality and behavioural uncertainty have given rise to incomplete contracts, especially in the agri-food sectors of most developing economies. Supply chain actors in this sector have the constant burden of assurance in ascertaining that credence goods remain authentically safe. The moderating effect of traceability is therefore proposed to reduce these uncertainties and is as such a form of assurance to promote both a holistic approach in compliance with standards and a seamless mechanism for product and process integration. However, this moderating effect, despite being novel in the value chain governance discourse, needs to be empirically ascertained. The novelty of this paper is based on the agricultural development agenda of developing economies in the light of the discourse on market-oriented reforms, following multilateral trade liberalisation and especially structural adjustment programmes in developing countries. The consequent increase in world market integration has led to the promotion of value chain strategies and reconsideration of how food is governed in these markets.

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