Quality and qualification: from fruits to CDOs

May 22, 2008

Randy Wesgren from Org and Markets offers an initial report about a wholesale fruit and vegetable exchange in Belgium. The market, if I understand correctly, acts, among other things as a standardization-to-price device (qualification, a-la Callon) for the quality of the produce:

all growers receive an identical payout, even if their particular lot of a given quality drew a higher/lower bid.

The standardization of prices and qualities is fundamental to the operation of markets. However, in financial markets is so deeply embedded into the operational procedures that it is easily overlooked. For example, practices such as minimal obligatory tick size and ranking of credit products are examples to such practices of price-qualification (note, the dash is there to indicate continuity). This deep entrenchment of qualification processes in financial markets can be part of the reason that SSF people like commodities markets so much (Garcia’s classical study of a strawberry market is a notable example). In commodities markets it is much easier to untangle the mechanisms that, in practice, perform the standardized qualities and to communicate these than, say, in markets for credit derivatives. After all, it is much easier to spot a rotten strawberry than to recognize an illiquid CDO.

5 Responses to “Quality and qualification: from fruits to CDOs”

  1. Alison Kemper Says:

    I have been wondering about the fact that it’s French strawberries in Marie-France Garcia’s work, and here we have Belgian strawberries.

    I think one of the reasons we see this phenomenon in berries is their evanescence. The pricing must be quick or the good is gone. The calculative device, the technology is critical: if it works slowly, it is of no use at all. The same is more likely true of cut flowers than barley. It’s not just any commodity, but those whose value has a half life of hours, where we will see the evolution of calculative technology emerge first.

    Similarly, we are not going to see fast paced trading with high tech equipment for real estate deals for some time. Financial products are highly volatile and must be priced and cleared immediately. The technology’s clock speed is related to the durability of the good.

    That’s my guess about berries.

    Or perhaps the research opportunities in EU produce are simply too appealing.

  2. danielbeunza Says:

    Very interesting. The minimal obligatory tick size destroyed the high returns of the statistical arbitrageur I studied during my dissertation. And he did not even know why.

    However, isn’t it puzzling that Wesgren is interested in these details… and at the same time appears to be hostile to SSF? See his other post on performativity:

    http://organizationsandmarkets.com/2008/05/15/something-to-abuse-graduate-students/

  3. yuvalmillo Says:

    Alison – yes. Fruit and veg have to be priced efficiently or else they drop in price. And as a die in the wool pragmatist, I would have to say that many things that are commonly classified as ‘purely ideological’ have a strong grain of usefulness embedded in them (blatant self-promotion: take a look at the Working Papers section). About financial markets: I think that you’re mixing cause and result here. The prices of financial products can become very volatile **because** pricing mechanisms are efficient (not to confuse, of course with market efficiency).

    Daniel – I haven’t seen this post, but from this blog post it sounds like he’s doing some interesting SSF work. About performativity, well, in our latest workshop we had one of the authors of the ASR paper he mentioned, right?

  4. danielbeunza Says:

    Right on. It would be interesting to hear from Luke about reactions to his paper. Specifically, did readers think that performativity deserves to be one of the three major branches of economic sociology?

  5. typewritten Says:

    One of the pretty straightforward insights from Marie-France Garcia’s study of the Fontaines-en-Sologne strawberry Dutch auction is that the (economic) notion of “efficiency” should be immediately followed by the (sociological) notion of “for who”. The Dutch auction was introduced in the 1980s to break an OTC-type market and to shift the balance of strength from brokers to growers. But the balance of strength has shifted again since, and this whole assemblage dropped to a great extent. Now this sort of transparency-enhancement spot market has been replaced by derivative contracts in which distribution chains like Carrefour are the kings of pricing.


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