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Food safety, reputation and trade

Author

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  • Mélise Jaud

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, World Bank - Banque Mondiale - France)

Abstract

I develop a simple dynamic model of reputation-based transactions between a buyer in one country and a supplier in another. I use the model to study the impact of a more stringent regulation on the buyer optimal purchase volume within an existing buyer-seller partnership. A more stringent standard affects the volume of trade in two intuitive ways: directly, a stricter standard affects the supply of quality goods and indirectly through reputation. I refer to the former effect as the regulation effect, and to the latter as the reputation effect. I show that, whereas most of the empirical literature has so far assumed that more stringent standards would be likely to reduce trade, the net effect is in fact non-monotone, even without taking into account endogenous technological upgrading in the supplier country. It varies with the belief the buyer holds about his seller at the time the change in regulation takes place. For both very low and very high seller's reputation, the reputation effect is negligible vis-à-vis the regulation effect. For intermediate levels of the supplier's reputation, reputation has the power to significantly mitigate the direct negative effect of a more stringent sanitary standard on trade. This result has significant implications for developing countries, for which access to developed countries markets is by and large, said to be disproportionately constrained by stricter standards.

Suggested Citation

  • Mélise Jaud, 2011. "Food safety, reputation and trade," Working Papers halshs-00586310, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00586310
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00586310
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    References listed on IDEAS

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    1. Luis Araujo & Emanuel Ornelas, 2005. "Trust-Based Trade," IBMEC RJ Economics Discussion Papers 2005-08, Economics Research Group, IBMEC Business School - Rio de Janeiro.
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    Cited by:

    1. Olivier Cadot & Céline Carrère & Vanessa Strauss-Kahn, 2014. "OECD imports: diversification of suppliers and quality search," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(1), pages 1-24, February.

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    Keywords

    Product quality; food safety; reputation; agricultural trade;

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