Files
Abstract
We formally investigate the effects of an inspection system influencing safety of
foreign and domestic food products in the domestic market. Consumers purchase domestic and
imported food and value safety. Potential protectionism à la Fisher and Serra (2000) can arise:
inspection frequency imposed on foreign producers set by a domestic social planner would be
higher than the corresponding policy set by a global social planner treating all producers as
domestic. The domestic social planner tends to impose most if not all of the inspection on
foreign producers, which improves food safety for consumers and limits the production loss for
domestic producers. Despite this protectionist component, inspections address a potential
consumption externality such as health hazard in the domestic country when unsafe food can
enter the country undetected. We then calibrate the analytical framework to the U.S. shrimp
market incorporating key stylized facts of this market. Identifying protectionist inspection
requires much information on inspection, safety, damages, and costs. We also investigate how to
finance the inspection policy from a social-planner perspective. Financing instruments differ
between the domestic and international welfare-maximizing objectives.