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The effects of information on producer and consumer incentives to undertake food safety efforts: A theoretical model and policy implications

  • Elamin H. Elbasha*

    (Health Economic Statistics, BL 2-3, Merck Research Laboratories, 10 Sentry Parkway, Blue Bell, PA 19422, USA. Tel: (484)344-4045,, Fax: (484)344-3855, E-mail: elamin_elbasha@merck.com)

  • T. Lynn Riggs

    (Chicago Census Research Data Center, 230 S LaSalle, Chicago, IL 60604, USA. Tel: (312)423-4692, Fax: (312)322-2357, E-mail: tlriggs@frbchi.org)

Food safety presents a double moral hazard problem. This author develops a model of food safety where consumers and producers undertake unobservable preventive measures to reduce the probability of a food-borne illness. Losses from a food-borne illness are shared by consumers and producers according to the existing tort law. We characterize the optimal solution and show that this risk-sharing arrangement and imperfect information create an incentive problem where suboptimal levels of precautions by producers and consumers are attained in a noncooperative Nash equilibrium solution. We conduct comparative static analysis to trace out the effects of changes in the size of losses, the degree of orientation of the legal system, and government regulation of information provision on precautions undertaken by consumers and producers. [EconLit citations: L150, Q180.] © 2003 Wiley Periodicals, Inc. Agribusiness 19: 29-42, 2003.

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File URL: http://hdl.handle.net/10.1002/agr.10043
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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 19 (2003)
Issue (Month): 1 ()
Pages: 29-42

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Handle: RePEc:wly:agribz:v:19:y:2003:i:1:p:29-42
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. John M. Antle, 2000. "No Such Thing as a Free Safe Lunch: The Cost of Food Safety Regulation in the Meat Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 310-322.
  2. Michael R. Thomsen & Andrew M. McKenzie, 2001. "Market Incentives for Safe Foods: An Examination of Shareholder Losses from Meat and Poultry Recalls," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 526-538.
  3. Buzby, Jean C. & Frenzen, Paul D., 1999. "Food safety and product liability," Food Policy, Elsevier, vol. 24(6), pages 637-651, December.
  4. Caswell, Julie A., 1998. "How Labeling Of Safety And Process Attributes Affects Markets For Food," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), October.
  5. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
  6. Kathleen Segerson, 1999. "Mandatory versus voluntary approaches to food safety," Agribusiness, John Wiley & Sons, Ltd., vol. 15(1), pages 53-70.
  7. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
  8. Russell Cooper & T.W. Ross, 1984. "Product Warranties and Double Moral Hazard," Cowles Foundation Discussion Papers 716, Cowles Foundation for Research in Economics, Yale University.
  9. Segerson, Kathleen, 1998. "Mandatory vs. Voluntary Approaches to Food Safety," Research Reports 25188, University of Connecticut, Food Marketing Policy Center.
  10. Foster, William & Just, Richard E., 1989. "Measuring welfare effects of product contamination with consumer uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 266-283, November.
  11. Golan, Elise H. & Kuchler, Fred & Mitchell, Lorraine, 2000. "Economics Of Food Labeling," Agricultural Economics Reports 34069, United States Department of Agriculture, Economic Research Service.
  12. A. M. Azzam, 1992. "Testing The Competitiveness Of Food Price Spreads," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(2), pages 248-256.
  13. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
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