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Inspection, testing errors and trade in tainted products

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  • Viaene, Jean-Marie
  • Zhao, Laixun

Abstract

This paper examines international trade and inspection involving tainted products in a model of quality choice, facing fears that globalization is the cause of numerous food incidents. Particularly, we ask the following questions: (i) What are the conditions under which foreign firms choose to produce tainted goods? (ii) Does globalization via freer trade lower product safety? (iii) Why are goods imported even though they are known to be harmful? We show the existence of a free trade Nash equilibrium characterized by production and trade of high-quality non-tainted products. However, free trade cannot prevent the export of tainted goods, because the foreign firm may deviate under different combinations of parameters. We identify self-correcting mechanisms such as nationalism and a political-economy re-allocation of public resources in favor of customs authorities. Nevertheless, we also uncover activities that exacerbate tainted production like errors of testing and sabotage by rival firms.

Suggested Citation

  • Viaene, Jean-Marie & Zhao, Laixun, 2015. "Inspection, testing errors and trade in tainted products," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 99-116.
    • Handle: RePEc:eee:jjieco:v:35:y:2015:i:c:p:99-116
    DOI: 10.1016/j.jjie.2014.11.001
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    More about this item

    Keywords

    Tainting; Errors of testing; Experience good; Asymmetric information; Sabotage; Self correction;
    All these keywords.

    JEL classification:

    • 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
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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