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Consumer purchasing decisions and welfare under country of origin. Labelling regulation

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  • Awada, Lana
  • Yiannaka, Amalia
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    Abstract

    This study develops a theoretical framework of heterogeneous consumer preferences to examine the effect of voluntary and mandatory country of origin labeling (COOL) on consumer purchasing decisions and welfare when consumers view COOL information as an attribute that differentiates products vertically and horizontally. Analytical results of both the vertically and horizontally differentiated product models show that the change from a no COOL to a mandatory COOL regime decreases (increases) the welfare of consumers with weak (strong) preference for COOL. A change from a no COOL to a voluntary COOL regime leads to an undisputed increase in consumer welfare which results from an increase in the welfare of consumers with strong preference for COOL, while the welfare of consumers with weak preference for COOL remains unchanged. A change from a voluntary to a mandatory COOL regime leads to a consumer welfare loss in the vertically differentiated product model and in the horizontally differentiated product model when product relocation is prohibitively costly. In both the above models, a switch from voluntary to mandatory COOL decreases the welfare of consumer with weak preference for COOL, while it keeps the welfare of consumers with strong preference for COOL unchanged. A change from a voluntary to a mandatory COOL regime in the horizontally differentiated product market when product relocation is possible leads to a decrease in the welfare of consumer with both weak and strong preference for COOL and to possible welfare gains for those consumers who place greater value in country of origin information under mandatory than under voluntary COOL.

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    File URL: http://purl.umn.edu/10038
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    Bibliographic Info

    Paper provided by European Association of Agricultural Economists in its series 98th Seminar, June 29-July 2, 2006, Chania, Crete, Greece with number 10038.

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    Date of creation: 2006
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    Handle: RePEc:ags:eaae98:10038

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    Related research

    Keywords: country of origin labeling; heterogeneous consumer preferences; vertical and horizontal product differentiation.; Consumer/Household Economics;

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    1. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    2. Loureiro, Maria L. & Umberger, Wendy J., 2002. "Estimating Consumer Willingness-To-Pay For Country Of-Origin-Labels For Beef Products," 2002 Annual meeting, July 28-31, Long Beach, CA 19745, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. 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.
    4. Dickinson, David L. & Bailey, DeeVon, 2002. "Meat Traceability: Are U.S. Consumers Willing To Pay For It?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(02), December.
    5. 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.
    6. Murray Fulton & Konstantinos Giannakas, 2004. "Inserting GM Products into the Food Chain: The Market and Welfare Effects of Different Labeling and Regulatory Regimes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 42-60.
    7. Hanselka, Daniel D. & Davis, Ernest E. & Anderson, David P. & Capps, Oral, Jr., 2004. "Demand Shifts in Beef Associated with Country-of-Origin Labeling to Minimize Losses in Social Welfare," Choices, Agricultural and Applied Economics Association, vol. 19(4).
    8. 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.
    9. Justus Haucap & Christian Wey & Jens F. Barmbold, 1997. "Location Choice as a Signal for Product Quality: The Economics of 'Made in Germany'," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 153(3), pages 510-, September.
    10. Giannakas, Konstantinos & Yiannaka, Amalia, 2003. "Agricultural Biotechnology And Organic Agriculture: National Organic Standards, Labeling And Second-Generation Of Gm Products," 2003 Annual meeting, July 27-30, Montreal, Canada 22063, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Hobbs, Jill E., 2003. "Traceability And Country Of Origin Labelling," Farm Policy Development and Policy Tensions under NAFTA; Proceedings of the 9th Agricultural and Food Policy Systems Information Workshop - 2003 16813, Farm Foundation, Agricultural and Food Policy Systems Information Workshops.
    12. Sterns, James A. & House, Lisa & VanSickle, John J. & Wysocki, Allen F., 2004. "Cool And Consumers' Willingness To Pay In The Fresh Produce Industry - Some Initial Impressions From The Field," 2004 Annual Meeting, February 14-18, 2004, Tulsa, Oklahoma 34780, Southern Agricultural Economics Association.
    13. Buhr, Brian L., 2003. "Traceability, Trade And Cool: Lessons From The Eu Meat And Poultry Industry," Working Papers 14577, International Agricultural Trade Research Consortium.
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