Economics of Food and Safety: Risk, Information, and the Demand and Supply of Health
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A model of expected utility maximization and a stochastic health production
function are used to show how consumer's beliefs, the certainty of beliefs,
and the presence of information affects demand for goods as they
are driven by the demand for health. Then, it is shown that competitive
markets fail to account for the health implications of substances in the
production of a commodity that affects health, nor are incentives provided
to inform consumers of substance concentrations and its implications to
health. This result is shown to not necessarily follow in concentrated
industries. Finally, conditions are derived whereby a benevolent government,
in the absence of rent seeking, chooses optimal levels of information and
taxes to attain Pareto optimal outcomes.