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Economics of food safety

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Do the benefits of growing food regulation outweigh their cost? ... Henson (just up to Section 4) Antle, Crutchfield. USDA ERS web resources ... – PowerPoint PPT presentation

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Title: Economics of food safety


1
Economics of food safety
  • Lecture 36
  • Economics of Food Markets
  • Alan Matthews

2
Key question
  • Do the benefits of growing food regulation
    outweigh their cost? Could we deliver a
    particular level of food safety more
    efficiently?
  • Issues
  • the market for food safety
  • the rationale for public intervention
  • types of intervention
  • economic evaluation of interventions

3
Readings
  • DEFRA 1999, Mitchell. Henson (just up to Section
    4)
  • Antle, Crutchfield
  • USDA ERS web resources

4
The market for food safety
  • Assuming full information, the consumer demand
    for food safety is downward sloping
  • The supply of food safety is upward sloping as
    the marginal cost of delivering additional units
    of food safety increases
  • Policy implication is that attempting to achieve
    zero risk is misguided. Zero risk is rarely
    desired by individuals who are aware of the
    implications of their choices and have the pay
    the costs of achieving them.

5
The problem of imperfect information
  • Quality characteristics such as food safety can
    be of three kinds
  • Search characteristics quality can be
    ascertained by buyer at the time of purchase
  • Experience characteristics quality can only be
    ascertained after purchase. Gives rise to the
    lemons problem familiar in the used car market.
    Food safety will be undersupplied.
  • But market solutions may exist (if repeat
    purchases, supplier has incentive to invest in
    reputation)

6
The problem of imperfect information
  • Quality characteristics
  • Credence characteristics consumer will never be
    able to ascertain the quality on his or her own,
    but relies on the judgement of others
  • Examples include the production process for a
    fruit (organic apples) or, in case of food
    safety, where there is a long time lag between
    ingestion and effect. Will be difficult for firms
    to establish reputations for quality.
  • Government regulation may be justified
  • Consumers may not be best judge of their
    interests when it comes to assessing risk

7
Externality arguments for public regulation
  • On the production side, one rogue producer who
    fails to meet adequate food standards can put the
    reputation of an entire national food industry at
    risk
  • On the consumption side, an infectious food-borne
    illness imposes wider costs on society that
    transcend those incurred by the individual
    consumer

8
Systems of food safety control
9
Food standards
10
Evaluation of food safety interventions
  • Literature associated with regulatory impact
    assessment based on benefit cost analysis
    initiated by Demsetz 1969 makes four points
  • Market mechanisms can often be employed and these
    incentive-based approaches are more likely to
    allow consumers to choose the optimal level of
    food safety
  • Regulations are justified only if they pass a
    benefit cost test issue of who should do this?

11
Evaluation of food safety interventions
  • Informed individual choice of food safety level
    is preferred to statutory safety standards when
    risk preferences are heterogeneous (T-bone steak,
    steak tartare, unpasteurised cheeses)
  • Even when regulation is justified, the costs of
    regulation can be minimised by the appropriate
    design of regulation (performance standards
    preferred to specification standards)

12
Benefit cost analysis
  • Requires ability to measure the value of
    reductions in morbidity and mortality associated
    with consuming foods that could be contaminated
  • For exporting countries, there may also be market
    benefits in terms of access to higher priced
    export markets

13
Estimated annual costs in US of food-borne
pathogens
Source Henson, 2003
14
Benefit cost analysis
  • Several approaches to valuing health risks
  • Cost of illness
  • Willingness to pay (WTP) to avoid illness
  • The value of a statistical life
  • Contingent valuation studies to estimate WTP for
    food safety
  • Distinction between tangible and intangible costs
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