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The effects of information on producer and consumer incentives to undertake food safety efforts: A theoretical model and policy implications

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Author Info

  • Elamin H. Elbasha*

    (Health Economic Statistics, BL 2-3, Merck Research Laboratories, 10 Sentry Parkway, Blue Bell, PA 19422, USA. Tel: (484)344-4045,, Fax: (484)344-3855, E-mail: elamin_elbasha@merck.com)

  • T. Lynn Riggs

    (Chicago Census Research Data Center, 230 S LaSalle, Chicago, IL 60604, USA. Tel: (312)423-4692, Fax: (312)322-2357, E-mail: tlriggs@frbchi.org)

Abstract

Food safety presents a double moral hazard problem. This author develops a model of food safety where consumers and producers undertake unobservable preventive measures to reduce the probability of a food-borne illness. Losses from a food-borne illness are shared by consumers and producers according to the existing tort law. We characterize the optimal solution and show that this risk-sharing arrangement and imperfect information create an incentive problem where suboptimal levels of precautions by producers and consumers are attained in a noncooperative Nash equilibrium solution. We conduct comparative static analysis to trace out the effects of changes in the size of losses, the degree of orientation of the legal system, and government regulation of information provision on precautions undertaken by consumers and producers. [EconLit citations: L150, Q180.] © 2003 Wiley Periodicals, Inc. Agribusiness 19: 29-42, 2003.

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File URL: http://hdl.handle.net/10.1002/agr.10043
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 19 (2003)
Issue (Month): 1 ()
Pages: 29-42

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Handle: RePEc:wly:agribz:v:19:y:2003:i:1:p:29-42

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Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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References

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  1. Golan, Elise H. & Kuchler, Fred & Mitchell, Lorraine, 2000. "Economics Of Food Labeling," Agricultural Economics Reports 34069, United States Department of Agriculture, Economic Research Service.
  2. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
  3. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  4. Caswell, Julie A., 1998. "How Labeling Of Safety And Process Attributes Affects Markets For Food," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), October.
  5. Kathleen Segerson, 1999. "Mandatory versus voluntary approaches to food safety," Agribusiness, John Wiley & Sons, Ltd., vol. 15(1), pages 53-70.
  6. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
  7. John M. Antle, 2000. "No Such Thing as a Free Safe Lunch: The Cost of Food Safety Regulation in the Meat Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 310-322.
  8. Michael R. Thomsen & Andrew M. McKenzie, 2001. "Market Incentives for Safe Foods: An Examination of Shareholder Losses from Meat and Poultry Recalls," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 526-538.
  9. Foster, William & Just, Richard E., 1989. "Measuring welfare effects of product contamination with consumer uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 266-283, November.
  10. Russell Cooper & Thomas W. Ross, 1985. "Product Warranties and Double Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 103-113, Spring.
  11. A. M. Azzam, 1992. "Testing The Competitiveness Of Food Price Spreads," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(2), pages 248-256.
  12. Segerson, Kathleen, 1998. "Mandatory vs. Voluntary Approaches to Food Safety," Research Reports 25188, University of Connecticut, Food Marketing Policy Center.
  13. Buzby, Jean C. & Frenzen, Paul D., 1999. "Food safety and product liability," Food Policy, Elsevier, vol. 24(6), pages 637-651, December.
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Cited by:
  1. Eric Giraud-Héraud & Hakim Hammoudi & Louis-Georges Soler, 2006. "Food Safety, Liability and Collective Norms," Working Papers hal-00243034, HAL.
  2. Bénédicte Coestier & Estelle Gozlan & Stephan Marette, 2004. "On Food Companies Liability for Obesity," Working Papers 2004/01, INRA, Economie Publique.
  3. B. Coestier & E. Gozlan & Stephan Marette, 2003. "La responsabilité des entreprises et le risque d'obésité," THEMA Working Papers 2003-42, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. Goldsmith, Peter D. & Turan, Nesve A. & Gow, Hamish R., 2004. "Firms, Incentives, And The Supply Of Food Safety: A Formal Model Of Government Enforcement," 2004 Annual meeting, August 1-4, Denver, CO 20343, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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