Tainted Food, Low-Quality Products and Trade

Jean-Marie Viaene and Laixun Zhao

No 245, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

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.

Keywords: Asymmetric information; Experience good; Product differentiation; Sabotage; Tainting; Trade (search for similar items in EconPapers)
JEL-codes: D43 F12 F13 I12 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2009-10
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:245

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