Standards, Voluntary Labels, and International Trade

Abstract

We develop a vertical differentiation model for the setting of standards and labeling in an international economy with two countries, North (N) and South (S) under two regimes: Autarky and International Trade. We assume that a firm in country S has a comparative advantage in producing low quality goods while a firm in country N has comparative advantage in producing high quality goods. Under Autarky each country sets a specific standard and the domestic firm behaves as a monopolist. Under International Trade both countries agree on harmonized standards and firms compete in the unified market. We show that standards harmonization is welfare enhancing compared to the Autarky scenario and that the introduction of a national label in country N does not lead to a Pareto improvement in country S. Consumers in both countries will be worse off with the introduction of the label, for low levels of firm S's comparative advantage.

Understanding Organic Food Qualities in the Global South: An East African Perspective

“…Under product-process approaches, quality can be understood from two separate perspectives; a product perspective and a process perspective. Products are composed of characteristics (Becker, 2000) which have been classified as search, experience and credence (Ponte & Gibbon, 2005;de Freitas & Bottega, 2009;Mason, 2009;Mondelaers, Verbeke, & Van Huylenbroeck, 2009;Grunert, 2010). Search characteristics (e.g., Size) can be determined before actual product purchase, experience characteristics can only be determined after product usage whereas credence characteristics can not be ascertained even after consumption.…”