Osaka Workshop on Economics of Institutions and Organization (#137)

Does producing high-quality goods sacrifice the productivity of their production?  If there is a trade-off between high quality and high productivity, which one is more important for a plant’s success?  To what extent does the price of goods reflect the quality of the goods?  The quality of goods is theoretically studied, but empirically not due to the measurement difficulty.  I analyze the relationship among quality of goods, price, productivity, exporting status, and the plant’s survival probability in the context of Japan’s silk-reeling industry during the interwar period.  The choice of the industry has attractive features: the production process is simply turning the main input, cocoon, into the single-output, raw silk; both inputs and output markets are highly competitive so that the endogenous markup is not a concern; and most importantly, the quality of raw silk is checked by the national inspection center and reported in the data.  At this stage, I find that (1) the price reflects quality, and (2) plants producing high-quality silk tend to have high productivity. Abstract：Hirokazu Ishise