Waiting for the invisible hand: Novel products and the role of information in the modern market for food
This paper places the modern spread of diet-related chronic disease in the United States within the context of more than a century of innovation in food processing technology, discovery in nutrition science, and corrective policy measures aimed at improving public health. We ask whether the current state of affairs represents a market failure, and--if so--what might be done about it. We argue that while today's industrial food system has its advantages, the asymmetric information problems inherent to this system have resulted in a "lemons-style" breakdown in the market for processed foods. The appropriate policy response to such situations (namely, verifiable quality standards) is well known, but such policies are likely (in the short run) to reduce profits for existing large industrial producers of food. In light of the food industry's long history of success at regulatory capture, we propose the formation of a new independent food standards agency devoted to protecting the interests of the American consumer.
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