Kathleen Segerson
15
(15') - C4 - [(l-s) +sβ]Dy = O.
Again, in the absence of misperceptions, i.e., if =β=l, the firm's choice
of q will be efficient, regardless of the value of s. However, if =0, then
even if producers fully anticipate potential damages (β=l), efficient
investment in food safety measures will not occur whenever s<l, i.e.,
whenever producers are not expecting to pay the full amount of damages.
Of course, if producers are not aware of damages either (the case of
symmetric imperfect information where =β=0—see Antle 1998) or they
do not expect to pay for any damages (s=0), then the firm will have no
incentive to invest in any protective measures.
V. Conclusion
The recent trend toward increased government regulation of food safety
stands in contrast to the trend toward greater reliance on voluntary
approaches in other areas of government involvement in the private sector,
such as environmental protection. In most pollution control contexts,
damages are to third parties (rather than consumers of the firm's product)
and hence there is less opportunity for market forces (i.e., demand
responses) to provide incentives for voluntary adoption of protective
measures.43 Instead, the inducement for voluntary adoption has come
primarily from financial incentives (e.g., subsidies) or the threat of
imposition of possibly more costly mandatory controls. In the context of
food safety, however, there is a greater potential for the market to provide
adoption incentives when consumers are aware of the safety Characterishcs
of individual products. In this paper we presented a simple framework for
examining a firm's incentives to adopt adequate food safety measures
voluntarily, and the role of the market in providing those incenfives.
The results suggest that, in the absence of any exphcit government role,
the efficiency of both the output and the safety decisions of the firm hinges
on the information available to both consumers and producers and the
likelihood that firms would actually be held liable for damages resulting
from a Contaminahon episode. If both consumers and produces correctly
perceive the damages from Contaminarion, then both decisions will be
efficient regardless of whether the firm is likely to pay lull compensation
for damages or not. Thus, for search and experience goods, in equilibrium
we could expect the maɪket to provide efficient incentives for food safety
even in the absence of a well-fimctioning liability system. We should note,
43 Demand might still be responsive to how "green" a firm's product is. In fact,
this provides the impetus for the use of eco-labelling. However, since
environmental damages from production are not borne primarily by users of the
product, the responsiveness of demand stems primarily from consumer demand for
environmental protection in general rather than the demand for self-protection, as in
the food safety context.