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Tainted Food, Low-Quality Products and Trade

Author

Listed:
  • Jean Marie Viaene

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

  • Laixun Zhao

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

Abstract

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.

Suggested Citation

  • Jean Marie Viaene & Laixun Zhao, 2009. "Tainted Food, Low-Quality Products and Trade," Discussion Paper Series 245, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:245
    as

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    File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp245.pdf
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    References listed on IDEAS

    as
    1. Roy, Santanu & Viaene, Jean-Marie, 1998. "On strategic vertical foreign investment," Journal of International Economics, Elsevier, vol. 46(2), pages 253-279, December.
    2. Konrad, Kai A, 2000. "Sabotage in Rent-Seeking Contests," Journal of Law, Economics, and Organization, Oxford University Press, vol. 16(1), pages 155-165, April.
    3. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Communicating quality: a unified model of disclosure and signalling," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 973-989.
    4. Bergès-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.
    5. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
    6. 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.
    7. 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.
    8. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
    9. 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.
    10. Salop, Steven C & Scheffman, David T, 1987. "Cost-Raising Strategies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 19-34, September.
    11. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Asymmetric information; Experience good; Product differentiation; Sabotage; Tainting; Trade;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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