Abstract
A methodology is developed for measuring consumer welfare loss from market demand due to contamination when information is imperfect. Comparison of behavior before and after awareness permits calculation of the “cost of ignorance” which occurs when news of contamination is withheld or undiscovered for a time as well as when excessive reporting and exaggeration cause overreaction. Avoidance costs are also calculated for consumers who consume less than they would with perfect information due to risk aversion. The methodology is applied to analyzing the heptachlor crisis which reduced milk consumption in Hawaii by over 80%.
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