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Information Asymmetry and the Value to Consumers of GM Food Labels: Evidence from Experimental Auctions

Investigators
Tegene, Abebayehu
Institutions
USDA - Economic Research Service
Start date
2000
End date
2004
Objective
The growing GM food controversy and consumer attempts to make better food purchasing decisions has pressed GM food labeling into an important public policy issue. Truthful labeling has been used to provide consumers with information on calories, nutrients, and food ingredients in the United States. In 1997, the European Commission adopted GMO food labeling which requires each member country to enact a law requiring labeling of all new products containing genetically modified organisms. In some EU countries, information technologies have made it economically feasible to encrypt large amounts of information on food package bar codes. Labeling involves real costs--fixed costs of designing labels and testing and monitoring for truthfulness. One key issue is whether the social benefits from labeling exceed the cost. This paper presents empirical evidence on consumers' willingness to pay for GM food labeling. We estimate values using a laboratory auction experiment performed on 180 randomly chosen adult consumers in the Des Moines, IA, and Minneapolis, MN, areas, grouped in 12 experimental units. They will participate in a random nth-price auction experiment, in which they bid on three familiar neutral food items (an oil, processed food, and a fresh food) that may be genetically modified. Experimental units are randomly assigned to the labeling treatment (i.e., food items with accurate GM food labels versus no food labels). The paper uses a statistical design and econometric analysis to estimate the average value of food labels to consumers participating in the experiment, measured as the difference in the auction price of a particular food item with and without a label, and relate individual consumer differences in the value of GM labels to their socio-demo-economic attributes. The goal is to provide useful information of the social benefits of GM food labeling to U.S. public policy makers who must decide on GM food labeling legislation.
More information
NON-TECHNICAL SUMMARY: Consumers and farmers try to make good decisions in the face of conflicting information about the benefit and risk of biotechnology. The project assesses consumers' demand for biotech foods when provided with pro, anti-, and independent third party information about biotechnology.

APPROACH: The research examines the effect of negative and positive information from interested parties, and independent third-party information on consumers' willingness to pay for biotech foods. The project combines the tools of survey design, statistical experimental design, and the laboratory auction mechanism to elicit consumers' willingness to pay for GM, non-GM, and standard labeld foods.

PROGRESS: 2003/10 TO 2004/09
Although genetic engineering is a promising tool for crop varietal development, bioengineered foods continue to be controversial. Our research this year looked at the issue from several angles:(1) What is the welfare effect of implementing a mnadatory labeling policy in the US? (2) Who do consumers trust for information on biotech foods? (3) What is the value of information from biotech companies and environmental groups? and (4) What is the effect and value of verifiable information? The results of the research are published in a book chapter, in AJAE (forthcoming, Dec. 2004), and an article is revised and resubmitted to Economic Inquiry.

Funding Source
Economic Research Service
Project number
FMB-38
Accession number
406248
Categories
Risk Assessment, Management, and Communication
Legislation and Regulations
Policy and Planning