Files
Abstract
This paper develops a model of differentiated consumers to examine the
consumption effects of genetic modification (GM) under alternative labeling regimes and
segregation enforcement scenarios. Analytical results show that if consumers perceive
GM products as being different than their traditional counterparts, genetic modification
affects consumer welfare and, thus, consumption decisions. When the existence of market
imperfections in one or more stages of the supply chain prevents the transmission of cost
savings associated with the new technology to consumers, genetic modification results in
welfare losses for consumers. The analysis shows that the relative welfare ranking of the
“no labeling” and “mandatory labeling” regimes depends on: (i) the level of consumer
aversion to genetic modification, (ii) the size of marketing and segregation costs under
mandatory labeling; (iii) the share of the GM product to total production; and (iv) the
extent to which GM products are incorrectly labeled as non-GM products.