The effects of information on producer and consumer incentives to undertake food safety efforts: A theoretical model and policy implications

Food safety presents a double moral hazard problem. This author develops a model of food safety where consumers and producers undertake unobservable preventive measures to reduce the probability of a food-borne illness. Losses from a food-borne illness are shared by consumers and producers according to the existing tort law. We characterize the optimal solution and show that this risk-sharing arrangement and imperfect information create an incentive problem where suboptimal levels of precautions by producers and consumers are attained in a noncooperative Nash equilibrium solution. We conduct comparative static analysis to trace out the effects of changes in the size of losses, the degree of orientation of the legal system, and government regulation of information provision on precautions undertaken by consumers and producers. [EconLit citations: L150, Q180.] © 2003 Wiley Periodicals, Inc. Agribusiness 19: 29-42, 2003.