Economics of Food and Safety: Risk, Information, and the Demand and Supply of Health

A model of expected utility maximization and a stochastic health production function are used to show how consumer's beliefs, the certainty of beliefs, and the presence of information affects demand for goods as they are driven by the demand for health. Then, it is shown that competitive markets fail to account for the health implications of substances in the production of a commodity that affects health, nor are incentives provided to inform consumers of substance concentrations and its implications to health. This result is shown to not necessarily follow in concentrated industries. Finally, conditions are derived whereby a benevolent government, in the absence of rent seeking, chooses optimal levels of information and taxes to attain Pareto optimal outcomes.

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Working or Discussion Paper
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Bulletin 90-1

 Record created 2017-04-01, last modified 2018-01-22

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