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Abstract

The paper examines the economic effects of labeling of food nanotechnology products using an analytical framework of heterogeneous consumers and imperfectly competitive suppliers. Labeling results in increased costs for nanofood producers that in turn increase nanofood prices and reduce their market demand; the cost effect of the labeling policy. Labeling also affects consumer preferences, the preference effect, by reducing uncertainty regarding the nature of the food product (certainty effect), and by potentially being perceived as a warning signal (stigma effect). The market and welfare impacts of nanofood labeling depend on which of the above effects dominate. If consumer aversion towards food nanotechnology increases due to labeling, nanofood suppliers incur losses to the benefit of suppliers of conventional and organic food substitutes and welfare decreases for most of consumers. Consumers who experience greater losses are those with relatively high aversion to interventions in the production process. On the other hand, if the labeling regime results in consumers becoming less averse to food nanotechnology and the preference effect dominates the cost effect, then nanofood suppliers see their profits increase. The economic impacts of nanofood labeling are intensified when consumers have low awareness of food nanotechnology prior to the implementation of the labeling policy and/or when competition among food suppliers is more intense.

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