Reconsidering the political economy of farm animal welfare: An anatomy of market failure

Animal welfare is often cited as a classic public good, which implies market failure and, thus, that government intervention is required. However, the current literature does not provide an accessible account of how governed markets are supposed to cope with the issues of animal welfare. This paper seeks to fill this gap by re-considering the political economy of animal welfare. Conceptual analysis shows that the major cause of market failure in the case of farm animal welfare is a problem of consumption externalities. It is the specific regulation of animal welfare conditions which is a public good (or bad). Two important conclusions follow from this analysis, which are largely unexplored in the literature on animal welfare. First, measurement of potential market failure, through identifying actual willingness to pay (WTP) for animal welfare friendly products, is potentially misleading. The difference between citizen votes and consumer WTP for animal welfare is not prima facie evidence for either market failure or a gap in the market. Second, conventional arguments in favour of subsidies and assistance to producers for better animal welfare are misconceived and potentially counterproductive. A more rational policy is to subsidise the consumption of animal welfare friendly products.