Information asymmetries and consumption decisions in organic food product markets

By K. Giannakas

Abstract
Organic agriculture is a rapidly growing segment of most developed agricultural economies around the world. To stimulate growth and circumvent supply side market failures that emerge when organic products are not segregated, governments have introduced regulations concerning the certification and labelling of organic food.

While certification and labelling satisfy market demand for information provision, the introduction of these activities creates incentives for the mislabelling of conventional food as organic. Despite the incentives for, and the incidence of, mislabelling in organic food product markets, this issue has not been analysed systematically. In fact, the possibility of mislabelling has been customarily neglected by economic studies of markets for credence goods in general.

This paper addresses the issue of product type misrepresentation in organic food product markets and develops a model of heterogeneous consumers that examines the effect of mislabelling on consumer purchasing decisions and welfare.

Analytical results show that, contrary to what is traditionally believed, while certification and labelling are necessary, they are not sufficient for alleviating failures in organic food product markets. The effectiveness of labelling depends on the level of product type misrepresentation.

Consumer deception through mislabelling affects consumer trust in the labelling process and can have detrimental consequences for the market acceptance of organic products. When extensive mislabelling occurs, the value of labelling is undermined and the organic food market fails.

Citation
Canadian-Journal-of-Agricultural-Economics. 2002; 50(1): 35-50

Contact Information
Department of Agricultural Economics, University of Nebraska-Lincoln, 216 H.C. Filley Hall, Lincoln, NE 68583-0922, USA.
E-Mail: kgiannakas@unl.edu

IS: 0008-3976
UD: 200200
AN: 20023155312