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Tainted Food, Low-Quality Products and Trade

Author

Listed:
  • Jean Marie Viaene

    (Erasmus University Rotterdam, Tinbergen Institute (Netherlands) and CESifo)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper examines international trade in tainted food and other low-quality products. We first find that for a large class of environments, free trade is the trading system that conveys the highest incentives to produce non-tainted high-quality goods by foreign exporters. However, free trade is neither a necessary nor a sufficient condition to exclude trade in tainted products. This condition is less easily satisfied if the marginal cost of high-quality production increases, or if errors of testing product quality matter. We also examine cases of image-building investments and sabotage. In particular, sabotage by the domestic firm reduces the foreign firm's incentives to produce high quality, and as a consequence tends to increase import tainting.

Suggested Citation

  • Jean Marie Viaene & Laixun Zhao, 2009. "Tainted Food, Low-Quality Products and Trade," Discussion Paper Series 245, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:245
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    References listed on IDEAS

    as
    1. Roy, Santanu & Viaene, Jean-Marie, 1998. "On strategic vertical foreign investment," Journal of International Economics, Elsevier, vol. 46(2), pages 253-279, December.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Asymmetric information; Experience good; Product differentiation; Sabotage; Tainting; Trade;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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