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Demand for risky foods and food safety

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  • Lin, Kung-Cheng

Abstract

A demand for risky food model is constructed to study several aspects of food safety problems. On the basis of this proposed model, results are addressed in the following. First, when the food safety is exogenously fixed, an increase in the safety level of the risky food X[subscript]1 increases the demand for X[subscript]1 if X[subscript]1 is normal. However, when both goods are risky, a rise in the safety level of one good generally has an ambiguous effect on the demands. For the case where the safety level is endogenously chosen, the consumer will in general accept some risks and perfect safety is not optimal. Second, in the absence of a market place for the food safety, measures of the marginal willingness to pay for the safety improvement and the risky food are derived. Although the signs of the comparative static analysis of the marginal willingness to pay for safety and the risky food are ambiguous, the conditions which result in a deterministic sign in a comparative static study are clearly shown and discussed. The discussion of these conditions could shed more insight for understanding the signs of estimated coefficients in empirical studies. For instance, the common hypothesis of the increasing marginal willingness to pay for safety with respect to income should be contingent on the assumptions that consumers reveal hazard aversion and income risk aversion for two independent hazards. Third, given full information about the safety content, competitive markets would yield the optimal levels of quality (safety) and quantity. This result implies that there is no need for the government to intervene when competitive markets prevail and information on the safety content of food is fully provided. The role of government in this case may be limited to the verification of safety information being accurately provided. However, when the safety information is perceived with uncertainty, the competitive market would not likely produce the socially desirable levels of either safety or quantity.

Suggested Citation

  • Lin, Kung-Cheng, 1993. "Demand for risky foods and food safety," ISU General Staff Papers 1993010108000011839, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:1993010108000011839
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    References listed on IDEAS

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