Academic journal article Journal of Agricultural and Resource Economics

Interaction between Food Attributes in Markets: The Case of Environmental Labeling

Academic journal article Journal of Agricultural and Resource Economics

Interaction between Food Attributes in Markets: The Case of Environmental Labeling

Article excerpt

Some consumers derive utility from using products produced with specific processes, such as environmentally friendly practices. Means of verifying these credence attributes, such as certification, are necessary for the market to function effectively. A substitute or complementary solution may exist when consumers perceive a relationship between a process attribute and other verifiable product attributes. We present a model where the level of search and experience attributes influences the likelihood of production of eco-friendly products. Our results suggest that the market success of eco-friendly food products requires a mix of environmental and other verifiable attributes that together signal credibility.

Key words: environmental labeling, food attributes, food marketing, quality perception

Introduction

Some consumers derive utility from buying and using food products produced under specific processes, such as environmentally friendly practices. Means of verifying the use of these practices are frequently necessary in order for markets to function efficiently and without fraud because consumers cannot evaluate whether particular practices were used. Analysis of eco-labeling has focused to a large extent on the operation of markets for environmental attributes without adequately addressing the total food product.

Our analysis differs by treating eco-friendliness as a component of a product's overall quality rather than as a stand-alone attribute. Some papers have already suggested that eco-certification requires minimum quality standards to command a price premium (Thompson and Kidwell, 1998; Lohr, 1998) but consider these minimum standards as conditions for market access. In contrast, we consider them as informational instruments that determine, at least partially, the credibility of environmental claims in consumers' minds. The types and levels of search and experience attributes required by minimum quality standards may not correspond to those consumers use to infer the credibility of environmental claims. We explore the extent to which the importance and credibility of environmental claims interact with a product's other quality attributes in determining the likelihood of success in marketing eco-friendly food products.

If consumers perceive a correlation between a process attribute, such as eco-friendliness, and other product attributes they can evaluate, the quality levels of such supporting supporting attributes can be a substitute for or complement to direct verification of environmental attributes. Verifiable attributes that can be inspected for before purchase or evaluated after use can support the credibility of the process claim, without strictly proving its truthfulness. Similarly, the credibility of an eco-friendly claim can be damaged by a failure to provide adequate levels of other verifiable attributes. Our results suggest the market success of environmentally friendly food products requires a mix of environmental and other verifiable attributes that together signal credibility.

An Overview of Quality Perception and Assurance

Understanding of the operation of markets for food, and food attributes, has evolved greatly based on analysis of the information environment available to consumers. Consumers' perception of quality is influenced by the product's intrinsic attributes as well as by extrinsic indicators and cues provided by the seller of the product. Intrinsic attributes relate to a broad array of attributes including food safety, nutrition, convenience, composition, and process attributes such as eco-friendliness (Caswell, Noelke, and Mojduszka, 2002). The information environment for different intrinsic attributes may be search, experience, or credence in nature (Akerlof, 1970; Nelson, 1970; Darby and Kami, 1973): the consumer can learn about the quality level prior to purchase (search), after purchase and use (experience), or not at all (credence). …

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