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A Game Theoretic Approach to Organic Foods: An Analysis of Asymmetric Information and Policy

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  • McCluskey, Jill J.

Abstract

Demand for healthy, safe, and environmentally friendly food products has been increasing. In response, producers are marketing organic and other quality-differentiated foods, sometimes claiming to have followed sound environmental and animal welfare practices. These products frequently have unobservable quality attributes. If the profitmaximizing producer is able to deceive the consumer with a false claim, then he or she will enjoy a higher price with lower production costs (compared to the full disclosure outcome). The analysis described in this paper shows that repeat-purchase relationships and third-party monitoring are required for high-quality credence goods to be available. Policy implications of this analysis for national organic food standards are discussed.

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Bibliographic Info

Paper provided by Australian Agricultural and Resource Economics Society in its series 2000 Conference (44th), January 23-25, 2000, Sydney, Australia with number 123706.

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Date of creation: 29 Jul 1999
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Handle: RePEc:ags:aare00:123706

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Keywords: credence goods; organic foods.; Agricultural and Food Policy; Food Consumption/Nutrition/Food Safety; L15; Q13;

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  1. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  3. John M. Antle, 1996. "Efficient Food Safety Regulation in the Food Manufacturing Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(5), pages 1242-1247.
  4. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  5. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Caswell, Julie A. & Mojduszka, Eliza M., 1996. "Using Informational Labeling To Influence The Market For Quality In Food Products," Working Papers 25989, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
  7. Teisl, Mario F. & Roe, Brian & Hicks, Robert L., 2002. "Can Eco-Labels Tune a Market? Evidence from Dolphin-Safe Labeling," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 339-359, May.
  8. Barro, Robert J., 1986. "Reputation in a model of monetary policy with incomplete information," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 3-20, January.
  9. Hooker, Neal H. & Caswell, Julie A., 1995. "Regulatory Targets And Regimes For Food Safety: A Comparison Of North American And European Approaches," Proceedings: The Economics of Reducing Health Risk from Food, June 6-7, 1995, Washington, D.C. 25964, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
  10. Winand Emons, 1994. "Credence Goods and Fraudulent Experts," Diskussionsschriften dp9402, Universitaet Bern, Departement Volkswirtschaft.
  11. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  12. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
  13. Farrell, Joseph, 1986. "Meaning and Credibility in Cheap-Talk Games," Department of Economics, Working Paper Series qt4968n3fz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  14. 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.
  15. 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.
  16. Antle, John M., 2001. "Economic analysis of food safety," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 19, pages 1083-1136 Elsevier.
  17. Kathleen Segerson, 1999. "Mandatory versus voluntary approaches to food safety," Agribusiness, John Wiley & Sons, Ltd., vol. 15(1), pages 53-70.
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