INFORMATION AS A DOUBLE-EDGED SWORD: THE ECONOMIC AND WELFARE CONSEQUENCES OF CERTIFIED LABELING FOR CREDENCE ATTRIBUTES

John Hoehn () and Deaton, Brady J.,

No 11762, Staff Paper Series from Michigan State University, Department of Agricultural, Food, and Resource Economics

Abstract: Certified labeling for credence attributes is examined using the concepts of pooled and separating equilibria. Credence attributes are product features that cannot be experienced directly by consumer, features such as pesticide-free, dolphin-safe, hormone-free, and organic. Without labeling, the traded good is a mix of credence and conventional goods. With certified labeling, the pooled market is replaced with separate markets for the credence and conventional good. Market outcomes are examined theoretically and with empirical simulations. Costless labeling is net welfare improving, but impacts are highly asymmetric. Credence producers gain largely at the expense of conventional producers. Costly labeling may reduce welfare even with rather modest labeling costs.

Keywords: Marketing (search for similar items in EconPapers)
Pages: 38
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ags:midasp:11762

DOI: 10.22004/ag.econ.11762

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