The Tariff Equivalent and Forgone Trade Effects of Prohibitive Technical Barriers to Trade

We derive a method to econometrically estimate the tariff equivalent and foregone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland's Kuhn-Tucker approach to corner solutions in consumer choice. The method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive nontariff trade barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the TBTs would induce net welfare gains around US$50 million annually for Australia.Corner solution; Kuhn-Tucker model; New Zealand apples; nontariff barrier; NTB; prohibitive; random utility; TBT; technical barrier to trade; SPS; phytosanitary

Three essays on food quality and transaction costs

Product quality and product differentiation have become increasingly important to producers and policymakers for explaining consumer choice over food products. Consumers are often willing to pay large price premiums for products with preferred attributes. Heterogeneity in quality increases the diversity of goods for consumers and can improve welfare. However, variation in quality also leads to higher transaction costs for consumers, producers and policymakers because quality attributes are hard to identify precisely and vary when the state of the world changes. The first essay addresses the issue of food-quality attributes driven by protectionist policy that inhibits exchange between two countries. Technical barriers to trade based on phyto-sanitary standards and their impact on food trade are investigated by accounting for quality heterogeneity based on the origin of the good (imported versus domestic) and for consumers\u27 home-good preference. The second essay is concerned with the complex interaction between quality promotion, through brand advertising and geographical indication, and quality improving effort in the context of asymmetric information. The results show that if a producer makes the effort to improve quality level, the producer will prefer to rely on brand advertising for promoting its products and setting up its own reputation. Despite allowing the cost of promotion to be shared, a geographical indication does not sufficiently reward the effort to improve quality. The third essay addresses the effect of interaction between organic attributes, an intrinsic attribute of food and appearance, an extrinsic attribute of food. Evidence from an experimental auction shows that a majority of consumers are willing to pay more for organic than for conventional apples. However, at the first sight of any deterioration in the appearance of the organic apples, this segment is significantly reduced. Furthermore, cosmetic damage has a larger impact on the average willingness to pay for organic apples than for conventional apples

Discounting Spotted Apples: Investigating Consumersï¾’ Willingness to Accept Cosmetic Damage in an Organic Product

Organic producers have limited methods of avoiding plant diseases that result in cosmetic damage to produce. Therefore, the appearance of organic produce is often less than perfect. We use an experimental auction to investigate how cosmetic damage affects consumersï¾’ willingness to pay for organic apples. We find that 75% of the participants are willing to pay more for organic than for conventional apples given identical appearance. However, at the first sight of any imperfection in the appearance of the organic apples, this segment is significantly reduced. Furthermore, we find that there is a significant effect of interaction between cosmetic damage and product methods. Even though most consumers say they buy organic products to avoid pesticides, we find that cosmetic damage has a larger impact on the willingness to pay for organic apples than for conventional apples.

Cognitive Dissonance As a Means of Reducing Hypothetical Bias

�Hypothetical bias is a persistent problem in stated preference studies. We propose and test a method for reducing hypothetical bias based on the cognitive dissonance literature in social psychology. A central element of this literature is that people prefer not to take inconsistent stands and will change their attitudes and behavior to make them consistent. We find that participants in a stated preference willingness-to-pay study, when told that a nonhypothetical study of similar goods would follow, state significantly lower willingness to pay than participants not so informed. In other words, participants adjust their stated willingness to pay to avoid cognitive dissonance from taking inconsistent stands on their willingness to pay for the good being offered. (09-WP 486)willingness to pay; apples; cognitive consistency; hypothetical bias; instrument calibration

How to Promote Quality Perception in Wine Markets: Brand Advertising or Geographic Indication?

In the context of the wine industry, we investigate producers' choice between geographic indications and brand advertising to convey information to consumers. Producers also decide whether or not to select an effort level for improving the quality of their products. We show that if this effort is selected, a producer will prefer to rely on brand advertising for promoting its products and set up its own reputation. Despite the sharing of the promotion cost, a geographic indication does not sufficiently reward the effort for improving quality. Finally, the selection of both instruments by producers is examined.Marketing,

Tariff Equivalent of Technical Barriers to Trade with Imperfect Substitution and Trade Costs

The price-wedge method yields a tariff-equivalent estimate of technical barriers to trade (TBT). An extension of this method accounts for imperfect substitution between domestic and imported goods and incorporates recent findings on trade costs. We explore the sensitivity of this revamped tariff equivalent estimate to its determinants (substitution elasticity, preference for home good, trade cost, and to the reference data chosen). We use the approach to investigate the ongoing U.S.-Japan apple trade dispute and find that removing the Japanese TBT would yield limited export gains to the United States. We then draw policy implications of our findings.International Relations/Trade,

Tariff Equivalent of Technical Barriers to Trade with Imperfect Substitution and Trade Costs

The price-wedge method yields a tariff-equivalent estimate of technical barriers to trade (TBT). An extension of this method accounts for imperfect substitution between domestic and imported goods and incorporates recent findings on trade costs. We explore the sensitivity of this revamped TBT estimate to its key determinants (substitution elasticity, preference for home good, and trade cost). We use the augmented approach to investigate the ongoing US-Japan apple trade dispute and find that removing the Japanese TBT would yield limited export gains to the United States. We then draw policy implications of our findings.

Potato Marketing – Factors Affecting Organic and Conventional Potato Consumption Patterns

In producing potatoes the treatment for disease and pests could be more difficult and costly for organic producers than for conventional. Hence, consumers’ attitudes and willingness to pay for organic potatoes need to be considered in a grower’s choice of production technologies. A bivariate probit model and cluster analysis were applied to survey data to evaluate factors that influenced Germany consumers’ consumption patterns for conventional and organic potatoes. The results show that consumers associate organic potatoes with healthy ingredients, trustable origin and food safety. But a lack of varieties and inferior appearance of organic potatoes limit consumer interest in the organic products. With regard to socio-demographics, consumers with higher education level and with children in the household tend to consume organic potatoes more often than consumers with lower education and no children in the household. Cluster analysis results group potato consumers into three different market segments: “Trusting of industry”, “Health-oriented” and “Price-oriented” segments. These results suggest adopting different marketing strategies to promote fresh potatoes to the different market segments.organic, potatoes, consumption patterns, Food Consumption/Nutrition/Food Safety, Marketing,

Milk-Marketing: Impact of Perceived Quality on Consumption Patterns

Consumers use of quality characteristics to make milk purchase decisions reveal opportunities to create successful marketing strategies. Such a strategy could concern food quality. In this case, three core areas influence consumers quality perception: the perception process, the physical product itself and the communication about it (Grunert et al., 1996). Beyond this background, this article analyzes the impact of certain quality characteristics and socio-demographics on consumption patterns regarding whole fat milk, skim milk and organic milk. These milks were chosen because of the increasing awareness of different fat contents in the meaning of lower fat contents being healthier and the increasing importance of the organic food market. Steenkamps (1990) concept of perceived quality provides as theoretical background. To gather the data a consumer survey with 260 households took place in Germany in 2004. An ordered logit model and a cluster analysis were used for analyzing the data. We find clear differences in consumers perception of quality characteristics for the different milks. This information can be used to develop demand-oriented marketing activities (Kotler and Armstrong, 1994: 48).milk, marketing, consumption patterns, perceived quality, ordered logit, Food Consumption/Nutrition/Food Safety, Marketing, D12, Q13, M3,

Discounting Spotted Apples: Investigating Consumers\u27 Willingness to Accept Cosmetic Damage in an Organic Product

The appearance of organic produce is often less than perfect because of limited methods of avoiding plant diseases. We combine hypothetical and real auction mechanisms to investigate how cosmetic damage affects Consumers\u27 willingness to pay for apples. We find that 75% of the participants are willing to pay more for organic than for conventional apples given identical appearance. However, at the first sight of any imperfection in the appearance of the organic apples, this segment is significantly reduced. Furthermore, the cosmetic damage has a larger impact on the willingness to pay for organic apples than for conventional apples