Information As A Double-Edge Sword: Implications For Food Standards And Labels

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Information As A Double-Edge Sword: Implications For Food Standards And Labels

Author Info

Deaton, B. James
Hoehn, John P.

Abstract

An analytical model is developed to examine product quality labeling. Prior to labeling all consumers are willing to pay a premium for the quality characteristic but product quality cannot be observed directly. If production costs are increasing, the total quantity produced may contain a mix of products - with and without the high-valued attribute. In the pooled equilibrium demand is influenced by perceptions of the product mix. After labels are introduced the market is separated into two sectors, conventional and high-valued. The economic implications of labels are examined by contrasting welfare in the separating equilibrium with welfare in the pooled equilibrium. Under the models' maintained assumptions the conventional sector loses welfare, while producers of the high-valued product experience gains. In addition, producers of the high-valued product may have incentives to promote costly labeling despite net-welfare losses.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2003 Annual meeting, July 27-30, Montreal, Canada with number 22235.

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Date of creation: 2003
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Handle: RePEc:ags:aaea03:22235

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Keywords: Marketing;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Klonsky, Karen & Tourte, Laura & Thompson, Gary D. & Lohr, Luanne & Krissoff, Barry, 1998. "Emergence Of U.S. Organic Agriculture: Can We Compete?," Faculty Series 16704, University of Georgia, Department of Agricultural and Applied Economics. [Downloadable!]
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Dermot J. Hayes & Sergio H. Lence & Andrea Stoppa, 2003. "Farmer-Owned Brands?," Center for Agricultural and Rural Development (CARD) Publications 02-bp39, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
Other versions:
- Hayes, Dermot J. & Lence, Sergio H. & Stoppa, Andrea, 2004. "Farmer-Owned Brands?," Staff General Research Papers 11285, Iowa State University, Department of Economics.
- Hayes, Dermot J. & Lence, Sergio H., 2007. "Farmer-Owned Brands?," Staff General Research Papers 12707, Iowa State University, Department of Economics.
George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213. [Downloadable!] (restricted)
Loureiro, Maria L. & Hine, Susan E., 2001. "Discovering Niche Markets: A Comparison Of Consumer Willingness To Pay For A Local (Colorado Grown), Organic, And Gmo-Free Product," 2001 Annual meeting, August 5-8, Chicago, IL 20630, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
Fetter, T. Robert & Caswell, Julie A., 2002. "Variation in Organic Standards Prior to the National Organic Program," Research Reports 25151, University of Connecticut, Food Marketing Policy Center. [Downloadable!]
Joseph E. Stiglitz, 2002. "Information and the Change in the Paradigm in Economics," American Economic Review, American Economic Association, vol. 92(3), pages 460-501, June. [Downloadable!]
Other versions:
- Stiglitz, Joseph E., 2001. "Information and the Change in the Paradigm in Economics," Nobel Prize in Economics documents 2001-8, Nobel Prize Committee. [Downloadable!]

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