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Information As A Double-Edge Sword: Implications For Food Standards And Labels

  • Deaton, Brady J., Jr.
  • Hoehn, John P.

An analytical model is developed to examine product quality labeling. Prior to labeling all consumers are willing to pay a premium for the quality characteristic but product quality cannot be observed directly. If production costs are increasing, the total quantity produced may contain a mix of products - with and without the high-valued attribute. In the pooled equilibrium demand is influenced by perceptions of the product mix. After labels are introduced the market is separated into two sectors, conventional and high-valued. The economic implications of labels are examined by contrasting welfare in the separating equilibrium with welfare in the pooled equilibrium. Under the models' maintained assumptions the conventional sector loses welfare, while producers of the high-valued product experience gains. In addition, producers of the high-valued product may have incentives to promote costly labeling despite net-welfare losses.

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File URL: http://purl.umn.edu/22235
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2003 Annual meeting, July 27-30, Montreal, Canada with number 22235.

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Date of creation: 2003
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Handle: RePEc:ags:aaea03:22235
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  1. Loureiro, Maria L. & Hine, Susan E., 2001. "Discovering Niche Markets: A Comparison Of Consumer Willingness To Pay For A Local (Colorado Grown), Organic, And Gmo-Free Product," 2001 Annual meeting, August 5-8, Chicago, IL 20630, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Joseph E. Stiglitz, 2002. "Information and the Change in the Paradigm in Economics," American Economic Review, American Economic Association, vol. 92(3), pages 460-501, June.
  3. Teisl, Mario F. & Roe, Brian & Hicks, Robert L., 2002. "Can Eco-Labels Tune a Market? Evidence from Dolphin-Safe Labeling," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 339-359, May.
  4. T. Robert Fetter & Julie A. Caswell, 2002. "Variation in Organic Standards Prior to the National Organic Program," Food Marketing Policy Center Research Reports 072, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  5. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  6. Dermot J. Hayes & Sergio H. Lence & Andrea Stoppa, 2003. "Farmer-Owned Brands?," Center for Agricultural and Rural Development (CARD) Publications 02-bp39, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  7. Hill, Lowell D., 1988. "Grain Grades: They Lack Economic Rational," Choices, Agricultural and Applied Economics Association, vol. 3(1).
  8. Hayes, Dermot J. & Lence, Sergio H., 2002. "A New Brand of Agriculture: Farmer-Owned Brands Reward Innovation," Choices, Agricultural and Applied Economics Association, vol. 17(3).
  9. Golan, Elise H. & Kuchler, Fred & Mitchell, Lorraine, 2000. "Economics Of Food Labeling," Agricultural Economics Reports 34069, United States Department of Agriculture, Economic Research Service.
  10. Klonsky, Karen & Tourte, Laura & Thompson, Gary D. & Lohr, Luanne & Krissoff, Barry, 1998. "Emergence Of U.S. Organic Agriculture: Can We Compete?," Faculty Series 16704, University of Georgia, Department of Agricultural and Applied Economics.
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