16
Mandatory vs. Voluntary Approaches to Food Safety
however, that, while the assignment of liability may not affect the output
and safety decisions of firms, it could have other important effects. For
example, if consumers are not compensated for damages, they will have
greater incentives to take whatever steps they can to reduce the likelihood
and magnitude of contamination. For example, they will have a greater
incentive to use safe handling and food preparation practices.44 However,
when the possibility of contamination is not completely eliminated, then a
rule of no liability imposes significant risk on consumers, which may be
very costly. If consumers are risk averse and unable to diversify the risks
associated with consumption of contaminated food, then the optimal
assignment of liability would balance risk allocation and incentives for safe
handling and preparation by consumers.45
While the market may work well to induce voluntary adoption of food
safety measures for search and experience goods, the above results also
suggest that it will not work well for credence goods. In particular, if
consumers are unaware of or even simply underestimate potential
damages, then even when producers are fully aware, anything less than full
liability will lead to overproduction of the good and under provision of food
safety. Since in practice it is unlikely that firms will always be held fully
liable even under a strict liability rule (due, for example, to the difficulty of
proving causation for credence goods), it is unlikely that firms would invest
in an efficient level of protection simply in response to market forces.
Thus, in the case of credence goods, adequate consumer protection is likely
to be achieved only with some form of government intervention. However,
this does not necessarily imply that mandatory regulations must be
imposed. As shown in Section III, even in the absence of market-driven
incentives for investment in food safety, firms might still choose to invest
voluntarily if induced to do so by a "carrot" or "stick." Through either
government-financed inducements or the threat of possibly more costly
mandatory controls, firms can be induced to undertake protective measures
voluntarily. If this approach is unsuccessful, however, the government
must be prepared to follow through on its threat and impose mandatory
standards if adequate food safety is to be ensured.
References
Antle, J. 1998. Economic Analysis of Food Safety. In B. Gardner and G. Rausser,
eds., Handbook of Agricultural Economics, forthcoming.
____. 1995. Choice and Efficiency in Food Safety Policy. Washington, D.C.: AEI
Press.
Babcock, B., P.G. Lakshminarayan, J. Wu, and D. Zilberman. 1996. Public Fund
44 See Weaver (1995) for a model of consumer mitigation of food risks.
45 This follows from the standard results in the literature on efficient risk
sharing. See, for example, Shavell (1979).