Abstract/Summary

Let 0 denote the level of quality inherent in a food product that is delivered to some terminal market. In this paper, I characterize allocations over 0 and provide an economic rationale for regulating safety and quality standards in the food system. Zusman and Bockstael investigate the theoretical foundations for imposing standards and stress the importance of providing a tractable conceptual foundation. Despite a wealth of contributions that are mainly empirical (for reviews of these works see, respectively, Caswell and Antle), there have been relatively few attempts to model formally the linkages between farm and food markets when food quality and consumer safety are at issue. Here, I attempt to provide such a framework, building on key contributions in the theoretical literature and linking them in a simple model of quality determination in a vertically related marketing channel. The food-marketing model is due to Gardner. Spence provides a foundation for Pareto-improving intervention in a deterministic model of quality provision, and Leland, building on the classic paper by Akerlof, investigates licensing and minimum standards when the information structure is incomplete. Linking these ideas in a satisfactory model of the food markets is the main objective of the paper.