Ensuring a Safe Food Supply: The Importance of Heterogeneity

In this paper we develop a model of food safety regulation that considers the employment of a differentiated food market with two types of government certified quality standards: a minimum standard and a higher one. Individuals, heterogeneous in their susceptibility to food-related health risks, choose which safety-grade of food to consume based on price and their vulnerability. The model is then extended to the case where consumers misperceive their susceptibility to health risks associated with food consumption. The theoretical presentation is followed by an application of the model to examine campylobacteriosis and salmonellosis caused by consumption of beef, pork, and chicken. The paper demonstrates that the benefits from multiple quality standards hinges fundamentally on the distribution of vulnerabilities across the population and the associated distribution of population health risks for a given level of food quality. Uniform standards are generally preferred to differentiated ones under either stringent or lax regulations on population health risk. If the population distribution of vulnerabilities is unimodal and consumers misperceive their vulnerability, the value of a differentiated policy will depend on which quality standard is attracting the majority of consumers. The empirical results confirm the importance of the population distribution of vulnerability on the relative desirability of single versus multiple quality standards.