A Test of Nutritional Quality Signaling in Food Markets Prior to Implementation of Mandatory Labeling

Abstract

AbstractIn May 1994, new nutrition labeling regulations went into effect in the United States requiring mandatory disclosure of information on the nutritional content of foods. This article uses Grossman's model of totally effective quality signaling to evaluate whether markets were effective in information provision prior to the new regulation. If markets were effective in providing information to consumers on the nutritional quality of foods the new regulation would be unnecessary. The results of the logistic model, where the probability of voluntary information disclosure is linked to the nutritional quality of food products and their prices, indicate that private quality signaling was not reliably at work in food markets prior to implementation of the mandatory nutrition labeling regulation.