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Product Labelling, Quality and International Trade

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  • Jansen, Marion
  • Lince de Faria, André

Abstract

This Paper analyses the reasons why countries may pursue different labeling policies in autarky and how this affects countries’ welfare in the context of international trade. In an asymmetric information environment where producers know the quality of the goods they are selling and consumers are not able to distinguish between them, the quality governments choose to protect by a label depends on consumer preferences for and production costs of different qualities. Countries with different distributions of tastes and/or different production functions will thus decide to label differently. When they trade, welfare effects will be different on the country as a whole and on different types of consumers within each country depending on whether countries choose to mutually recognize each others labeling policy or to harmonize their policies. In particular it will be the case that a country with weak preferences for high quality will oppose the introduction of an international, harmonized label as it is better off under a regime of mutual recognition. When countries only differ in their costs of producing quality instead, none of the trading partners will lose from a move towards trade under an international, harmonized label.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3552.

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Date of creation: Sep 2002
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Handle: RePEc:cpr:ceprdp:3552

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Keywords: international trade; product labels;

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  1. Gene M. Grossman & Henrik Horn, 1987. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," NBER Working Papers 2159, National Bureau of Economic Research, Inc.
  2. Kyle Bagwell & R. Staiger, 1987. "The Role of Export Subsidies When Product Quality is Unknown," Discussion Papers 758, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
  4. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  5. Donnenfeld, Shabtai & Weber, Shlomo & Ben-Zion, Uri, 1985. "Import controls under imperfect information," Journal of International Economics, Elsevier, vol. 19(3-4), pages 341-354, November.
  6. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  7. Falvey, Rodney E, 1989. "Trade, Quality Reputations and Commercial Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 607-22, August.
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Cited by:
  1. Andy Thorpe & Catherine Robinson, 2004. "When goliaths clash: US and EU differences over the labeling of food products derived from genetically modified organisms," Agriculture and Human Values, Springer, vol. 21(4), pages 287-298, January.

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