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Waiting for the invisible hand: Novel products and the role of information in the modern market for food

  • Smith, Trenton G.
  • Chouinard, Hayley H.
  • Wandschneider, Philip R.

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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Article provided by Elsevier in its journal Food Policy.

Volume (Year): 36 (2011)
Issue (Month): 2 (April)
Pages: 239-249

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Handle: RePEc:eee:jfpoli:v:36:y:2011:i:2:p:239-249
Contact details of provider: Web page: http://www.elsevier.com/locate/foodpol

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  1. Inas Rashad & Sara Markowitz, 2007. "Incentives in Obesity and Health Insurance," NBER Working Papers 13113, National Bureau of Economic Research, Inc.
  2. Trenton Smith & Hayley Chouinard & Philip Wandschneider, 2009. "Waiting for the Invisible Hand: Novel Products and the Role of Information in the Modern Market for Food," Working Papers 2009-07, School of Economic Sciences, Washington State University.
  3. Roe, Brian E. & Teisl, Mario F., 1998. "The Economics Of Labeling: An Overview Of Issues For Health And Environmental Disclosure," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), October.
  4. Alston, Julian M. & Sumner, Daniel A. & Vosti, Stephen A., 2008. "Farm subsidies and obesity in the United States: National evidence and international comparisons," Food Policy, Elsevier, vol. 33(6), pages 470-479, December.
  5. Shin-Yi Chou & Michael Grossman & Henry Saffer, 2002. "An Economic Analysis of Adult Obesity: Results from the Behavioral Risk Factor Surveillance System," NBER Working Papers 9247, National Bureau of Economic Research, Inc.
  6. Trenton Smith & Christiana Stoddard & Michael G. Barnes, 2007. "Why the Poor Get Fat: Weight Gain and Economic Insecurity," Working Papers 2007-16, School of Economic Sciences, Washington State University.
  7. Wim Verbeke, 2005. "Agriculture and the food industry in the information age," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(3), pages 347-368, September.
  8. Unnevehr, Laurian J. & Jagmanaite, Evelina, 2008. "Getting rid of trans fats in the US diet: Policies, incentives and progress," Food Policy, Elsevier, vol. 33(6), pages 497-503, December.
  9. David Cutler & Edward Glaeser & Jesse Shapiro, 2003. "Why Have Americans Become More Obese?," NBER Working Papers 9446, National Bureau of Economic Research, Inc.
  10. Xavier Gabaix & David Laibson, 2005. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," NBER Working Papers 11755, National Bureau of Economic Research, Inc.
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  13. William A. Masters & Diakalia Sanogo, 2002. "Welfare Gains from Quality Certification of Infant Foods: Results from a Market Experiment in Mali," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 974-989.
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  15. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  16. Trenton G. Smith, 2004. "The McDonald’s Equilibrium. Advertising, empty calories, and the endogenous determination of dietary preferences," Social Choice and Welfare, Springer, vol. 23(3), pages 383-413, December.
  17. Parke E. Wilde, 2007. "Federal Communication about Obesity in the Dietary Guidelines and Checkoff Programs," Chapters, in: Obesity, Business and Public Policy, chapter 9 Edward Elgar.
  18. Robert, Jacques & Stahl, Dale O, II, 1993. "Informative Price Advertising in a Sequential Search Model," Econometrica, Econometric Society, vol. 61(3), pages 657-86, May.
  19. Reardon, Thomas & Codron, Jean-Marie & Busch, Lawrence & Bingen, R. James & Harris, Craig, 1999. "Global Change In Agrifood Grades And Standards: Agribusiness Strategic Responses In Developing Countries," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IAMA), vol. 2(03/04).
  20. Smith, Trenton G. & Tasnadi, Attila, 2005. "A Theory of Natural Addiction," 2005 Annual meeting, July 24-27, Providence, RI 19195, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  21. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  22. Schmalensee, Richard, 1982. "Product Differentiation Advantages of Pioneering Brands," American Economic Review, American Economic Association, vol. 72(3), pages 349-65, June.
  23. Braverman, Avishay, 1980. "Consumer Search and Alternative Market Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 487-502, April.
  24. K. K. Lancaster, 2010. "A New Approach to Consumer Theory," Levine's Working Paper Archive 1385, David K. Levine.
  25. Andrew Stivers, 2009. "Regulating Market Language: Market Failure in Descriptive Signals," Journal of Consumer Policy, Springer, vol. 32(1), pages 23-41, March.
  26. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
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