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Product Labelling, Quality and International Trade

Author

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  • Jansen, Marion
  • Lince de Faria, André

Abstract

This Paper analyses the reasons why countries may pursue different labeling policies in autarky and how this affects countries’ welfare in the context of international trade. In an asymmetric information environment where producers know the quality of the goods they are selling and consumers are not able to distinguish between them, the quality governments choose to protect by a label depends on consumer preferences for and production costs of different qualities. Countries with different distributions of tastes and/or different production functions will thus decide to label differently. When they trade, welfare effects will be different on the country as a whole and on different types of consumers within each country depending on whether countries choose to mutually recognize each others labeling policy or to harmonize their policies. In particular it will be the case that a country with weak preferences for high quality will oppose the introduction of an international, harmonized label as it is better off under a regime of mutual recognition. When countries only differ in their costs of producing quality instead, none of the trading partners will lose from a move towards trade under an international, harmonized label.

Suggested Citation

  • Jansen, Marion & Lince de Faria, André, 2002. "Product Labelling, Quality and International Trade," CEPR Discussion Papers 3552, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3552
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    References listed on IDEAS

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    1. Falvey, Rodney E, 1989. "Trade, Quality Reputations and Commercial Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 607-622, August.
    2. Bagwell, Kyle & Staiger, Robert W., 1989. "The role of export subsidies when product quality is unknown," Journal of International Economics, Elsevier, vol. 27(1-2), pages 69-89, August.
    3. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    4. Gene M. Grossman & Henrik Horn, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 767-787.
    5. 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.
    6. Donnenfeld, Shabtai & Weber, Shlomo & Ben-Zion, Uri, 1985. "Import controls under imperfect information," Journal of International Economics, Elsevier, vol. 19(3-4), pages 341-354, November.
    7. 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.
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    Cited by:

    1. Jansen, Marion & Keck, Alexander, 2004. "National environmental policies and multilateral trade rules," WTO Staff Working Papers ERSD-2004-01, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Andy Thorpe & Catherine Robinson, 2004. "When goliaths clash: US and EU differences over the labeling of food products derived from genetically modified organisms," Agriculture and Human Values, Springer;The Agriculture, Food, & Human Values Society (AFHVS), vol. 21(4), pages 287-298, January.
    3. Bernard, Christophe & Calmette, Marie-Françoise & Kilkenny, Maureen & Loustalan, Catherine & Pechoux, Isabelle, 2016. "A model of international trade with vertical differentiation and Stackelberg leadership," TSE Working Papers 16-708, Toulouse School of Economics (TSE).

    More about this item

    Keywords

    international trade; product labels;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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