Quality signaling and international trade in food products

Focusing on the issue of food safety, the authors consider a framework of repeated purchases under the scenario of imperfect information on product quality (adverse selection and experience goods). A firm in a northern country can more easily detect tainted products than can a southern one. When imports are banned, the northern firm does not always signal the actual quality of its products. Competition from imports may lead the northern firm to test the quality of its products as a way to differentiate itself from foreign competitors. Consumers benefit from the disclosure of information on quality, even though borders are open to products of uncertain quality. However, competition from imports also increases the cost of signaling high quality. This can be detrimental to the welfare of the importing country when the cost of detection is high.

[1]  Julie A. Caswell,et al.  HACCP as an International Trade Standard , 1996 .

[2]  T. Otsuki,et al.  Saving two in a billion:: quantifying the trade effect of European food safety standards on African exports , 2001 .

[3]  Kyle Bagwell,et al.  Advertising as Information: Matching Products to Buyers , 1993 .

[4]  Jennifer F. Reinganum,et al.  Everybody Out of the Pool: Products Liability, Punitive Damages, and Competition , 1995 .

[5]  W. Mitullah.  Food Safety Requirements and Food Exports from Developing Countries: The Case of Fish Exports from Kenya to the European Union , 2000 .

[6]  C. Shapiro,et al.  Counterfeit-Product Trade , 1986 .

[7]  C. Shapiro.  Premiums for High Quality Products as Returns to Reputations , 1983 .

[8]  George A. Akerlof.  The Market for “Lemons”: Quality Uncertainty and the Market Mechanism , 1970 .

[9]  Tore Ellingsen,et al.  Price signals quality: The case of perfectly inelastic demand , 1997 .

[10]  Andrew Postlewaite,et al.  Belief-Based Refinements in Signalling Games , 1993 .

[11]  Justus Haucap,et al.  Location Costs, Product Quality, and Implicit Franchise Contracts , 2000 .

[12]  M. Darby,et al.  Free Competition and the Optimal Amount of Fraud , 1973, The Journal of Law and Economics.

[13]  S. Shavell.  Acquisition and Disclosure of Information Prior to Sale , 1994 .

[14]  Shabtai Donnenfeld.  Intra-industry trade and imperfect information about product quality , 1986 .

[15]  R. Falvey.  Trade, Quality Reputations and Commercial Policy , 1989 .

[16]  P. Overgaard.  Price as a signal of quality , 1993 .

[17]  K. Bagwell,et al.  The Role of Export Subsisies When Product Quality is Unknown , 1988 .

[18]  David M. Kreps,et al.  Signaling Games and Stable Equilibria , 1987 .

[19]  Paul R. Milgrom,et al.  Price and Advertising Signals of Product Quality , 1986, Journal of Political Economy.

[20]  C. A. L. D. Santos,et al.  European Union 1997 Seafood-Safety Ban: The Economic Impact on Bangladesh Shrimp Processing , 1998, Marine Resource Economics.

[21]  Shlomo Weber,et al.  Import controls under imperfect information , 1985 .

[22]  B. Copeland,et al.  Product quality and the theory of comparative advantage , 1996 .

[23]  Kevin M. Murphy,et al.  Quality and Trade , 1991 .

[24]  K. Bagwell,et al.  High and Declining Prices Signal Product Quality , 1991 .

[25]  James Kliebenstein,et al.  Valuing Food Safety in Experimental Auction Markets , 1995 .

[26]  Andrew F. Daughety,et al.  Product Safety: Liability, R&D, and Signaling , 1994 .