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Abstract
The study explores the market and welfare effects of the introduction of a
food nanotechnology innovation under different labeling regimes. An analytical
framework of heterogeneous consumers who differ in their attitudes towards interventions in the production process and imperfectly competitive producers is
developed to analyze the effects of food nanotechnology under different labeling
regimes while considering different consumer preferences for food nanotechnology. Analytical results show that high consumer valuation of the enhanced attributes of nanofoods can lead to consumer acceptance of nanofoods even
when consumers are averse to nanotechnology. In most cases, the introduction
of food nanotechnology leads to a reduction in the prices and quantities of the
existing food alternatives with the price and quantity decreases being greater
when nanotechnology adoption costs are low. When this happens, welfare is
lower for non-adopting producers and greater for nanofood adopters and for
all consumers; consumers who benefit the most from the introduction of food
nanotechnology are those who switch their consumption to nanofoods. Finally,
labeling regulation has an adverse impact on consumer welfare when consumers
are averse to food nanotechnology. Under this case, producers of substitute food products experience welfare gains at the expense of nanofood producers. The
results, yet, are intriguingly divergent if consumers have no knowledge of or
are indifferent to food nanotechnology in the absence of labeling. Moreover,
if consumers perceive food nanotechnology as less invasive than conventional
food technology, welfare gains and losses might be realized by different groups
of consumers and producers depending on the relative magnitude of the model
parameters.