Wine Brokers as Independent Experts

Abstract

This paper aims to show that an institutional arrangement such as brokerage is an efficient coordination mechanism to mitigate the contractual hazards in the relationship between merchants and wine growers. We explain its efficiency by considering brokers as independent experts that can help merchants to monitor the growers' wine-making process. More precisely, when the merchant cannot observe the grower's production effort and finds it costly to commit to a credible monitoring of the wine quality process, it can be efficient to delegate the monitoring task to the broker. Thus, delegation to a third party has a commitment effect.