Incentives, Information and Food Safety Regulation
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| Title | Incentives, Information and Food Safety Regulation
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| Author | Gong Qiang, Zhang Yilin and Yu Jianyu |
| Organization | Southwestern University of Finance and Economics |
| Email | qgongpku@gmail.com,yujianyu@swufe.edu.cn |
| Key Words | Food Safety; Regulation; Information Asymmetry; Information Disclosure; Liability |
| Abstract | This paper investigates the food safety regulation in the presence of the information asymmetry. Due to the limitation of inspection and monitoring of regulation and the possibility of “regulatory capture”, firms have incentive to adopt the production technology, which costs less but may have unsafe impact on consumers’ health. The result shows that efficiency can be achieved by requiring firms to disclose the information of production and transaction that is critical for food safety. In doing so, the regulator establishes an information platform for the supervision of various parties in the society, including the third party, consumers and relevant monitors. Although the individual firm’s cost increases, the firms using unsafe technology will find it more likely to be detected and receive more severe punishment from the society, and hence suffer a larger loss than the firms adopting safe technology. As a result, the credibility of the industry increases, which raises the consumers’ willingness to pay and the profit of the safe firms. This, in turn, gives incentive for firms to switch to safer technology. The analysis on efficiency of price intervention shows that, although a price ceiling can increase consumer surplus, it reduces the overall level of food safety and hence the social welfare. |
| Serial Number | WP408 |
| Time | 2013-02-21 |
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