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Grading, Minimum Quality Standards, and the Labeling of Genetically Modified Products

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  • Harvey Lapan
  • GianCarlo Moschini

Abstract

We relate the labeling of genetically modified (GM) products to the theory of grading and minimum quality standards. The model represents three stages in the supply chain, assumes a vertical product differentiation framework, allows for the accidental commingling of non-GM products, and treats regulation as a purity threshold for non-GM products. We find that a non-GM purity level that is too strict leads to the disappearance of the non-GM product, and that some quality standard benefits farmers. Indeed, the standard that is optimal from the perspective of producers is stricter than what is optimal for consumers and for societal welfare. Copyright 2007, Oxford University Press.

Suggested Citation

  • Harvey Lapan & GianCarlo Moschini, 2007. "Grading, Minimum Quality Standards, and the Labeling of Genetically Modified Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(3), pages 769-783.
  • Handle: RePEc:oup:ajagec:v:89:y:2007:i:3:p:769-783
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2007.01002.x
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    References listed on IDEAS

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    1. Giancarlo Moschini & Harvey Lapan & Andrei Sobolevsky, 2000. "Roundup ready® soybeans and welfare effects in the soybean complex," Agribusiness, John Wiley & Sons, Ltd., vol. 16(1), pages 33-55.
    2. Bullock, D. S. & Desquilbet, M., 2002. "The economics of non-GMO segregation and identity preservation," Food Policy, Elsevier, vol. 27(1), pages 81-99, February.
    3. Murray Fulton & Konstantinos Giannakas, 2004. "Inserting GM Products into the Food Chain: The Market and Welfare Effects of Different Labeling and Regulatory Regimes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 42-60.
    4. Dimitri Carolyn, 2003. "Agricultural Marketing Institutions: A Response to Quality Disputes," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-25, September.
    5. José Benjamin Falck-Zepeda & Greg Traxler & Robert G. Nelson, 2000. "Surplus Distribution from the Introduction of a Biotechnology Innovation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 360-369.
    6. Harvey E. Lapan & Giancarlo Moschini, 2004. "Innovation and Trade with Endogenous Market Failure: The Case of Genetically Modified Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 634-648.
    7. Maxwell, John W., 1998. "Minimum quality standards as a barrier to innovation," Economics Letters, Elsevier, vol. 58(3), pages 355-360, March.
    8. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
    9. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-245, November.
    10. John Crespi & Stéphan Marette, 2003. "“Does Contain” vs. “Does Not Contain”: Does it Matter which GMO Label is Used?," European Journal of Law and Economics, Springer, vol. 16(3), pages 327-344, November.
    11. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
    12. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    13. Carter, Colin A. & Gruere, Guillaume P., 2003. "International Approaches to the Labeling of Genetically Modified Foods," Choices, Agricultural and Applied Economics Association, vol. 18(2).
    14. Bruce Gardner, 2003. "U.S. Food Quality Standards: Fix for Market Failure or Costly Anachronism?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 725-730.
    15. Stivers, Andrew, 2003. "Quality standards with exogenously distributed quality," Economics Letters, Elsevier, vol. 80(1), pages 131-136, July.
    16. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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    Cited by:

    1. Hu, Wuyang & Woods, Timothy & Bastin, Sandra & Cox, Linda & You, Wen, 2011. "Assessing Consumer Willingness to Pay for Value-Added Blueberry Products Using a Payment Card Survey," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 43(02), pages 243-258, May.
    2. GianCarlo Moschini, 2008. "Biotechnology and the development of food markets: retrospect and prospects," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 35(3), pages 331-355, September.
    3. Marion Desquilbet & Sylvaine Poret, 2014. "How do GM/non GM coexistence regulations affect markets and welfare?," European Journal of Law and Economics, Springer, vol. 37(1), pages 51-82, February.
    4. Hajderllari, Eliona & Karantininis, Kostas, 2011. "Genetically modified foods in vertically differentiated and vertically oligopolistic markets," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114774, European Association of Agricultural Economists.
    5. Olivier Bonroy & Christos Constantatos, 2015. "On the Economics of Labels: How Their Introduction Affects the Functioning of Markets and the Welfare of All Participants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 239-259.
    6. repec:gbl:wpaper:2013-01 is not listed on IDEAS
    7. Lapan, Harvey & Moschini, GianCarlo, 2009. "Quality certification standards in competitive markets: When consumers and producers (dis)agree," Economics Letters, Elsevier, vol. 104(3), pages 144-147, September.
    8. repec:bpj:bjafio:v:15:y:2017:i:1:p:7:n:3 is not listed on IDEAS
    9. repec:bla:ajarec:v:61:y:2017:i:4:p:590-609 is not listed on IDEAS
    10. Bansal, Sangeeta & Chakravarty, Sujoy & Ramaswami, Bharat, 2013. "The informational and signaling impacts of labels: experimental evidence from India on GM foods," Environment and Development Economics, Cambridge University Press, vol. 18(06), pages 701-722, December.
    11. Bonroy, Olivier & Lemarié, Stéphane, 2012. "Downstream labeling and upstream price competition," European Economic Review, Elsevier, vol. 56(3), pages 347-360.
    12. Colson, Gregory, 2009. "Improving nutrient content through genetic modification: Evidence from experimental auctions on consumer acceptance and willingness to pay for intragenic foods," ISU General Staff Papers 200901010800001872, Iowa State University, Department of Economics.
    13. Johan F.M.Swinnen & Thijs Vandemoortele, 2011. "On Butterflies and Frankenstein: A Dynamic Theory of Regulation," LICOS Discussion Papers 27611, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

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