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Benefit Evaluation of the Country of Origin Labeling in Taiwan: Results from Auction Experiment

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  • Chern, Wen S.
  • Chang, Chun-Yu
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    Abstract

    This research is aimed at investigating the consumer’s preference for food produced in Taiwan and the economic benefits for the country of origin labeling. The study uses both experimental auction and contingent valuation method (CVM) to investigate factors that affect the consumer’s willingness to pay (WTP) for products under country-of-origin labeling (COOL). Experimental auctions of Taiwan and China preserved olives as well as Taiwan, China and Vietnam oolong teas were conducted using the Vickrey’s second price sealed bid auction. For CVM, the study used the double-bounded dichotomous choice method in which we started assuming the same base price for all products in the first question and then varied the prices in the second CV question. The products not chosen in the first question were offered with a discount in a range from 10% to 50% in the following question. Based on auction data, the Tobit model shows that the estimated premiums are 58.1%, 78.15% and 98.13% for Taiwan products over their alternatives of China olives, China oolong tea, and Vietnam oolong tea, respectively. Based on the CVM, the estimated premiums for Taiwan over China olives from a Logit model is 67%, and the premiums for Taiwan produced oolong tea should lie between 50% to an unknown upper bound over China and Vietnam alternatives as the Multinomial Logit model cannot be successfully estimated due to too few choice switches with discounted prices. The study thus demonstrates the superiority of the experimental auction over the CVM in eliciting the WTP for foods produced in Taiwan. The study concludes that enacting a COOL law would increase economic benefits to consumers in Taiwan, and at the same time, placing the imported products in the level playing field.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49215.

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    Date of creation: May 2009
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    Handle: RePEc:ags:aaea09:49215

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    Keywords: country-of-origin labeling; experimental auction; Tobit model; contingent valuation method; logit model; multinomial logit model; willingness to pay; Agricultural and Food Policy; Consumer/Household Economics; Demand and Price Analysis; Food Consumption/Nutrition/Food Safety; Q13; D12.;

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    References

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    1. Schmitz, Andrew & Moss, Charles B. & Schmitz, Troy G., 2005. "A Differential Examination of the Effect of Mandatory Country of Origin of Labeling on the Beef Sector," 2005 Annual meeting, July 24-27, Providence, RI 19158, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Buzby, Jean C. & Skees, Jerry R. & Ready, Richard C., 1995. "Chapter 12: USING CONTINGENT VALUATION TO VALUE FOOD SAFETY: A CASE STUDY OF GRAPEFRUIT AND PESTICIDE RESIDUES," Valuing Food Safety and Nutrition (1995), Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance, number 25972.
    3. Herriges, Joseph A. & Shogren, Jason F., 1996. "Starting Point Bias in Dichotomous Choice Valuation with Follow-Up Questioning," Staff General Research Papers 1501, Iowa State University, Department of Economics.
    4. Loureiro, Maria L. & Umberger, Wendy J., 2003. "Estimating Consumer Willingness to Pay for Country-of-Origin Labeling," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(02), August.
    5. Trudy Ann Cameron & John Quiggin, 1992. "Estimation Using Contingent Valuation Data From a "Dichotomous Choice with Follow-Up" Questionnaire," UCLA Economics Working Papers 653, UCLA Department of Economics.
    6. Shogren, Jason F. & Shin, Seung Youll & Hayes, Dermot J. & Kliebenstein, James, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," Staff General Research Papers 701, Iowa State University, Department of Economics.
    7. Corrigan, Jay R. & Rousu, Matthew C., 2006. "AJAE Appendix: Posted Prices and Bid Affiliation: Evidence from Experimental Auctions," American Journal of Agricultural Economics Appendices, Agricultural and Applied Economics Association, vol. 88(4), November.
    8. Alberini Anna, 1995. "Efficiency vs Bias of Willingness-to-Pay Estimates: Bivariate and Interval-Data Models," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 169-180, September.
    9. Jay R. Corrigan & Matthew C. Rousu, 2006. "Posted Prices and Bid Affiliation: Evidence from Experimental Auctions," Working Papers 0602, Kenyon College, Department of Economics.
    10. Colin Carter & Barry Krissoff & Alix Peterson Zwane, 2006. "Can Country-of-Origin Labeling Succeed as a Marketing Tool for Produce? Lessons from Three Case Studies," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(4), pages 513-530, December.
    11. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
    12. Schupp, Alvin R. & Gillespie, Jeffrey M., 2001. "Handler Reactions To Potential Compulsory Country-Of-Origin Labeling Of Fresh Or Frozen Beef," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 33(01), April.
    13. Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-47, June.
    14. Lusk, Jayson L. & Anderson, John D., 2004. "Effects of Country-of-Origin Labeling on Meat Producers and Consumers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(02), August.
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