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Promoting Organic Food: Information Policy Versus Production Subsidy

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  • Tribl, Christoph
  • Salhofer, Klaus

Abstract

Governments in developed countries aim to increase the market share of organic products as a possibility to improve the environment or animal welfare or as a reaction to food crises and changing consumer preferences. Assuming that organic farming creates a positive externality, we address the question of how this environmental benefit can be internalized best. We use the concepts of heterogeneous producers with different unit production costs and heterogeneous consumers with different preferences for conventional and organic food, and compare two policy options to enhance organic supply and demand with respect to their efficiency and distributional effect: Firstly, we analyze the effect of a supply-side oriented policy like a subsidy on organic production on equilibrium prices and quantities, and producer and consumer welfare. Secondly, we compare this policy measure with a demand-side oriented information policy, which aims to enhance the acceptance and identification of an organic label. The main findings of this paper are that in either case, producers and consumers of conventional food are worse off, organic producers and consumers experience a gain in welfare, but the change in welfare is identical under the two policy options.

Suggested Citation

  • Tribl, Christoph & Salhofer, Klaus, 2004. "Promoting Organic Food: Information Policy Versus Production Subsidy," 2004 Annual meeting, August 1-4, Denver, CO 20003, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea04:20003
    DOI: 10.22004/ag.econ.20003
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    References listed on IDEAS

    as
    1. Konstantinos Giannakas, 2002. "Information Asymmetries and Consumption Decisions in Organic Food Product Markets," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 50(1), pages 35-50, March.
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    3. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
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    8. Murray Fulton & Konstantinos Giannakas, 2004. "Inserting GM Products into the Food Chain: The Market and Welfare Effects of Different Labeling and Regulatory Regimes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 42-60.
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    More about this item

    Keywords

    Marketing;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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