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Tainted Food, Low-Quality Products and Trade

  • Jean Marie Viaene

    (Erasmus University Rotterdam, Tinbergen Institute (Netherlands) and CESifo)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

This paper examines international trade in tainted food and other low-quality products. We first find that for a large class of environments, free trade is the trading system that conveys the highest incentives to produce non-tainted high-quality goods by foreign exporters. However, free trade is neither a necessary nor a sufficient condition to exclude trade in tainted products. This condition is less easily satisfied if the marginal cost of high-quality production increases, or if errors of testing product quality matter. We also examine cases of image-building investments and sabotage. In particular, sabotage by the domestic firm reduces the foreign firm's incentives to produce high quality, and as a consequence tends to increase import tainting.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp245.pdf
File Function: First version, 2009
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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 245.

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Length: 37 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:kob:dpaper:245
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  1. Salop, Steven C & Scheffman, David T, 1987. "Cost-Raising Strategies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 19-34, September.
  2. Berg├Ęs-Sennou Fabian & Waterson Michael, 2005. "Private Label Products as Experience Goods," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(2), pages 1-19, December.
  3. Andrew F. Daughety & Jennifer F. Reinganum, 2007. "Communicating Quality: A Unified Model of Disclosure and Signaling," Vanderbilt University Department of Economics Working Papers 0703, Vanderbilt University Department of Economics.
  4. 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.
  5. Chen, Mah-Lih, 1991. "The role of R&D subsidies when incomplete information is an entry-barrier," Journal of International Economics, Elsevier, vol. 31(3-4), pages 251-270, November.
  6. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  7. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Papers 9136, Tilburg - Center for Economic Research.
  8. Roy, Santanu & Viaene, Jean-Marie, 1998. "On strategic vertical foreign investment," Journal of International Economics, Elsevier, vol. 46(2), pages 253-279, December.
  9. Baumol, William J., 1992. "Innovation and strategic sabotage as a feedback process," Japan and the World Economy, Elsevier, vol. 4(4), pages 275-290, December.
  10. Konrad, Kai A, 2000. "Sabotage in Rent-Seeking Contests," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(1), pages 155-65, April.
  11. Shy, Oz, 2000. "Exporting as a Signal for Product Quality," Economica, London School of Economics and Political Science, vol. 67(265), pages 79-90, February.
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