An economic analysis of nanofood labeling

Abstract

The paper examines the economic effects of labeling food nanotechnology products using an analytical framework of heterogeneous consumers and imperfectly competitive suppliers. Labeling results in increased costs for nanofood producers (the cost effect of the labeling policy), reduced consumer uncertainty regarding the nature of the food product (certainty effect), and can affect consumer attitudes towards nanofoods by being perceived as a warning signal (stigma effect). In this context, nanofood labeling can change the perceived quality differences between nanofoods and their conventional and organic counterparts, with such changes being more salient when the stigma effect is large, when consumers have low awareness of food nanotechnology in the absence of labeling, and/or when competition among nanofood suppliers is more intense. Despite its empirical relevance, the impact of a labeling policy on consumer preferences (and the economic ramifications of such impact) has largely been ignored by the theoretical literature on the economics of labels. Our analysis shows that it matters. Specifically, our study shows that the market and welfare effects of labeling are case-specific and dependent on consumer awareness of, and attitudes towards food nanotechnology before and after the introduction of the policy as well as the relative magnitude of the cost, certainty and stigma effects of nanofood labeling. Our analytical findings also suggest that the effects of nanofood labels on consumer welfare are asymmetric with certain groups of consumers benefiting even when labeling has a stigma effect on nanofoods.