Academic journal article Journal of Agricultural and Resource Economics

Consumer Willingness to Pay for Genetically Modified Food Labels in a Market with Diverse Information: Evidence from Experimental Auctions

Academic journal article Journal of Agricultural and Resource Economics

Consumer Willingness to Pay for Genetically Modified Food Labels in a Market with Diverse Information: Evidence from Experimental Auctions

Article excerpt

With the continuing controversy over genetically modified (GM) foods, some groups advocate mandatory labeling of these products, while other groups oppose labeling. An important issue is how GM labels affect consumers' willingness to pay for these food products in the market. Using a statistically based economics experiment with adult consumers as subjects, we examine how willingness to pay changes for three food products-vegetable oil, tortilla chips, and potatoes-when GM labels are introduced. Participants in the experiments discounted GM-labeled foods by approximately 14% relative to their standard-labeled counterparts. The evidence also showed that sequencing of food labels affects willingness to pay, and that randomizing treatments is an important methodological feature in experiments of willingness to pay.

Key words: consumer demand, corn chips, experimental economics, food labels, genetic modification, GM foods, laboratory auctions, potatoes, vegetable oil, willingness to pay

Introduction

The growing controversy over genetically modified (GM) food products and consumers' attempts to make better food purchasing decisions have stimulated interest in new objective information, including food labeling. Labeling has become an important public policy issue worldwide. In the United States, truthful labeling has been used to provide consumers with information on calories, nutrients, and food ingredients. But the federal government requires explicit labeling only if a GM food has distinctive characteristics relative to the non-GM version. In contrast, the European Commission adopted genetically modified food labels in 1997. The Commission requires each member country to enact a law requiring labeling of all new products containing GM organisms. Japan, Australia, and many other countries have also passed laws requiring GM labels for major foods. Labeling involves real costs-fixed costs of testing, segregation or identity preservation, and risk premium for being out of contract-and variable costs of monitoring for truthfulness. A key question is: Does consumer behavior change with the presence of different labels?

Mendenhall and Evenson report on a telemarketing survey conducted in February 1999 of 55 adults in New Haven, Connecticut. Eight-two percent of these respondents strongly believe foods made with GM ingredients should be labeled. This finding is consistent with most surveys on GM foods, but it is strikingly different from the results of the referendum vote in Oregon on November 2002, in which approximately 70% of voters rejected a ballot referendum that would have mandated labels for GM foods.

This study uses the tools of survey design, statistical experimental design, experimental economics theory, and the random nth-price auction to elicit consumers' willingness to pay (WTP) for both GM-labeled and standard-labeled foods using a random sample of adult consumers drawn from two Midwestern cities.1 By gathering information on three goods-vegetable oil, tortilla chips, and potatoes-dislike for genetic modification can be distinguished from dislike for a particular food item. In an experimental auction with divergent information about risks and benefits, we examine whether consumers value information provided in GM labels.

In this study, tests of the following hypotheses are reported: (H1) GM food labels have no effect on WTP for food items; (H2) attributes of participants, including prior beliefs, do not affect WTP for food items; and (H3) no difference in willingness to pay occurs because of the sequencing of labels in laboratory trials (i.e., whether the consumer first bids on foods with or without GM food labels).

Background on GM Food and GM Labels

Few experimental auctions have been conducted to elicit information about genetic modification. Noussair, Robin, and Ruffieux (2001) used experimental auctions with a sample of 97 Europeans, and found that bids for biscuits decreased by 37% when participants were told a product was GM. …

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