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Waiting for the invisible hand: Novel products and the role of information in the modern market for food

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  • Smith, Trenton G.
  • Chouinard, Hayley H.
  • Wandschneider, Philip R.

Abstract

This paper places the modern spread of diet-related chronic disease in the United States within the context of more than a century of innovation in food processing technology, discovery in nutrition science, and corrective policy measures aimed at improving public health. We ask whether the current state of affairs represents a market failure, and--if so--what might be done about it. We argue that while today's industrial food system has its advantages, the asymmetric information problems inherent to this system have resulted in a "lemons-style" breakdown in the market for processed foods. The appropriate policy response to such situations (namely, verifiable quality standards) is well known, but such policies are likely (in the short run) to reduce profits for existing large industrial producers of food. In light of the food industry's long history of success at regulatory capture, we propose the formation of a new independent food standards agency devoted to protecting the interests of the American consumer.

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Bibliographic Info

Article provided by Elsevier in its journal Food Policy.

Volume (Year): 36 (2011)
Issue (Month): 2 (April)
Pages: 239-249

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Handle: RePEc:eee:jfpoli:v:36:y:2011:i:2:p:239-249

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Web page: http://www.elsevier.com/locate/foodpol

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Keywords: Credence goods History Food policy Certification;

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References

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  1. Trenton Smith & Christiana Stoddard & Michael G. Barnes, 2007. "Why the Poor Get Fat: Weight Gain and Economic Insecurity," Working Papers 2007-16, School of Economic Sciences, Washington State University.
  2. Unnevehr, Laurian J. & Jagmanaite, Evelina, 2008. "Getting rid of trans fats in the US diet: Policies, incentives and progress," Food Policy, Elsevier, vol. 33(6), pages 497-503, December.
  3. Roe, Brian E. & Teisl, Mario F., 1998. "The Economics Of Labeling: An Overview Of Issues For Health And Environmental Disclosure," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), October.
  4. Smith, Trenton G. & Tasnadi, Attila, 2007. "A theory of natural addiction," Games and Economic Behavior, Elsevier, vol. 59(2), pages 316-344, May.
  5. Smith, Trenton G, 2002. "The McDonald's Equilibrium: Advertising, Empty Calories, and the Endogenous Determination of Dietary Preferences," University of California at Santa Barbara, Economics Working Paper Series qt0hx9x4jr, Department of Economics, UC Santa Barbara.
  6. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
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  8. Wim Verbeke, 2005. "Agriculture and the food industry in the information age," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(3), pages 347-368, September.
  9. Alston, Julian M. & Sumner, Daniel A. & Vosti, Stephen A., 2008. "Farm subsidies and obesity in the United States: National evidence and international comparisons," Food Policy, Elsevier, vol. 33(6), pages 470-479, December.
  10. Braverman, Avishay, 1980. "Consumer Search and Alternative Market Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 487-502, April.
  11. William A. Masters & Diakalia Sanogo, 2002. "Welfare Gains from Quality Certification of Infant Foods: Results from a Market Experiment in Mali," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 974-989.
  12. Shapiro, Jesse & Glaeser, Edward & Cutler, David, 2003. "Why Have Americans Become More Obese," Scholarly Articles 2640583, Harvard University Department of Economics.
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  15. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  16. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  17. David Cutler & Edward Glaeser & Jesse Shapiro, 2003. "Why Have Americans Become More Obese?," NBER Working Papers 9446, National Bureau of Economic Research, Inc.
  18. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, 09.
  19. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  20. Inas Rashad & Sara Markowitz, 2007. "Incentives in Obesity and Health Insurance," NBER Working Papers 13113, National Bureau of Economic Research, Inc.
  21. Andrew Stivers, 2009. "Regulating Market Language: Market Failure in Descriptive Signals," Journal of Consumer Policy, Springer, vol. 32(1), pages 23-41, March.
  22. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  23. John M. Crespi & St)phan Marette, 2001. "How Should Food Safety Certification be Financed?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 852-861.
  24. Parke Wilde, . "Federal Communication about Obesity in the Dietary Guidelines and Checkoff Programs," Working Papers in Food Policy and Nutrition 27, Friedman School of Nutrition Science and Policy, revised May 2005.
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  26. Reardon, Thomas & Codron, Jean-Marie & Busch, Lawrence & Bingen, R. James & Harris, Craig, 1999. "Global Change In Agrifood Grades And Standards: Agribusiness Strategic Responses In Developing Countries," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IAMA), vol. 2(03/04).
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Cited by:
  1. Chad M. Baum, 2013. "Mass-Produced Food: the Rise and Fall of the Promise of Health and Safety," Papers on Economics and Evolution 2013-03, Max Planck Institute of Economics, Evolutionary Economics Group.
  2. Trenton G. Smith & Attila Tasnadi, 2013. "The Economics of Information, Deep Capture, and the Obesity Debate," Working Papers 1315, University of Otago, Department of Economics, revised Nov 2013.
  3. Smith, Trenton G. & Tasnadi, Attila, 2012. "'Hidden Quality' in the History of American Food: Consumer Search vs. Industry Obfuscation?," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125103, Agricultural and Applied Economics Association.

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