Working Paper: CEPR ID: DP3552
Authors: Marion Jansen; Andr Lince de Faria
Abstract: This Paper analyses the reasons why countries may pursue different labeling policies in autarky and how this affects countries? welfare in the context of international trade. In an asymmetric information environment where producers know the quality of the goods they are selling and consumers are not able to distinguish between them, the quality governments choose to protect by a label depends on consumer preferences for and production costs of different qualities. Countries with different distributions of tastes and/or different production functions will thus decide to label differently. When they trade, welfare effects will be different on the country as a whole and on different types of consumers within each country depending on whether countries choose to mutually recognize each others labeling policy or to harmonize their policies. In particular it will be the case that a country with weak preferences for high quality will oppose the introduction of an international, harmonized label as it is better off under a regime of mutual recognition. When countries only differ in their costs of producing quality instead, none of the trading partners will lose from a move towards trade under an international, harmonized label.
Keywords: international trade; product labels
JEL Codes: D82; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Consumer preferences (D11) | Labeling policies (D18) |
| Labeling policies (D18) | Welfare differences (I38) |
| Labeling policy harmonization (D18) | Consumer welfare (D69) |
| Mutual recognition (F55) | Product quality availability (L15) |
| Government interventions (E65) | Market quality (D49) |