GEP 11/24: Does Trade Weaken Product Quality Standards?

Summary

We investigate how regulations designed to correct for asymmetric information will change depending on the weight given to producer interests and whether the trade effects are explicitly taken into account.

Abstract

In this paper we investigate the interrelationships between trade and national minimum quality standards. We employ a simple partial equilibrium model in which national regulators set a minimum quality standard for a product whose quality is unobservable to consumers prior to purchase. Both producers and consumers can benefit from a minimum standard, but the former prefer a lower standard to the latter. Because producers are organised and consumers are not, the standards set by national regulators may tend to unduly favour producer interests. We focus on two specific issues: first, how the weight given to producer interests affects the outcomes in autarky and the open economy; and, second, how outcomes differ when the effects of standards on trade are explicitly taken into account or ignored in standard setting in the open economy.

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Authors

Katia Berti and Rod Falvey

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