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Abstract
We investigate the economic impact of partial implementation of COOL on U.S. shrimp
trade by developing a conceptual model that encompasses horizontal and vertical product
differentiation. Horizontal differentiation is characterized by explicitly accounting for
differences in shrimp processing – fresh or frozen versus peeled, canned, or breaded.
Vertical differentiation in the conceptual model is captured by two scenarios – presence
and absence of COOL – on trade between major shrimp exporters and United States.
COOL implementation results in quality disclosure through origin labeling and additional
costs of labeling on fresh and frozen shrimp sold at retail while processed shrimp
products are excluded from labeling. The conceptual model indicates a change in product
mix with COOL implementation: the relative share of processed shrimp increases when
compared to unprocessed shrimp. Empirically testing the hypothesis using an
econometric model shows there is no change in the product mix in the two scenarios. The
results however change depending on the choice of variable used to proxy quality.