The Economics of GM Labeling and Implications for Trade

In this article, we model the effects of both voluntary and mandatory genetically modified (GM) food labeling on profits and consumer welfare. The non-GM firms weakly benefit from having the option to voluntarily label their product and will increase their quantities produced if labeling makes their non-GM product more valuable to consumers relative to the increased costs of labeling. GM producers make lower profits when non-GM firms voluntarily label because of increase in non-GM firms production. Mandatory labeling can be a different scenario. Costs of mandatory labeling are borne by the GM producers, and the benefits are reaped by the non-GM producers as it differentiates their product. We also consider the possibility that consumers will view the mandatory GM labels as a warning, such as a mandatory health label on cigarettes. The combination of increased costs along with decreased willingness to pay could be damaging to GM producers. The level of consumer concern about consuming GM food greatly affects the impact of labeling policies. Coordination of policies for a trade agreement will have different effects depending on consumer risk perceptions in that country and the number of GM firms.