This paper analyzes economic issues that arise in devising a credible and enforceable system of identity preservation and labeling for genetically modified (GM) and non-GM products. The model represents three stages in the supply chain: farm production, marketing handlers, and final users. The possibility of accidental co-mingling of non-GM products is modeled at the marketing stage. Regulation takes the form of a threshold level of purity for non-GM products, a probability of government testing to verify compliance with the threshold level, and a fine for violators. Uncertainty is modeled explicitly, such that would-be suppliers of non-GM products always face some risk of failing the test and incurring a fine. The paper also presents a novel demand specification for differentiated GM and non-GM products that is particularly useful in our stochastic framework. The results emphasize the role and impact of an uncertain testing technology, a critical feature in this setting. We also highlight the somewhat nonstandard trade-off between frequency of testing and the size of the fine that applies here. Because testing can prevent mislabeled product from reaching the consumer, it can provide a direct welfare benefit. An equilibrium that includes production of the non-GM good may only be supportable with sufficiently high testing frequency (a high penalty for mislabeling may not suffice).
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
12203.
Length: Date of creation: 18 Oct 2004 Date of revision: Handle: RePEc:isu:genres:12203
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070 Phone: +1 515.294.6741 Fax: +1 515.294.0221 Email: Web page: http://www.econ.iastate.edu More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Stephanie Bridges).
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.: