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Abstract

This study provides a new framework of analysis of the market and welfare effects of mandatory country of origin labeling (MCOOL) for fruits and vegetables that accounts for heterogeneous consumer preferences for domestic products, differences in producer agronomic characteristics, and retailer market power when buying and selling these products. The market and welfare effects of MCOOL are shown to be case-specific and dependent on the labeling costs at the farm and retail levels, the strength of consumer preference for domestic products, the market power of retailers, the marketing margin along the supply chain, and the relative costs of imported and domestic products. Simulation results for the US markets of apples and tomatoes indicate that for the regulation to increase total economic welfare in these markets, the consumer demand after MCOOL would need to increase by 2.6% to 7.0% for domestic apples and by 8.2% to 22.4% for domestic tomatoes, depending on the market power of retailers and the size of the labeling costs.

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