Higher Minimum Quality Standards and Redistributive Effects on Consumer Welfare

67 Pages Posted: 4 Aug 2018 Last revised: 19 Dec 2018

See all articles by Marco J.W. Kotschedoff

Marco J.W. Kotschedoff

Goethe University Frankfurt - Faculty of Economics and Business Administration

Max J. Pachali

Tilburg University - School of Economics and Management

Date Written: December 18, 2018

Abstract

This paper estimates an individual level demand model for eggs differentiated by animal welfare. Typically, after minimum quality standards for eggs are raised, the price of higher quality eggs falls. As a result, consumer welfare is redistributed from households who do not value animal welfare to households who are willing to pay a premium for animal welfare. In our analysis of German household data, we find that on average, households with higher income are willing to pay more for eggs that provide higher animal welfare. This provides evidence that higher minimum quality standards have a regressive impact. In counter-factual scenarios, we estimate the cost reduction that would be needed to offset the regressive effect, and find that as retailers’ pricing power increases, the cost reduction must be higher. Finally, we consider hypothetical future scenarios that continue to increase the minimum quality standard until only the highest quality eggs remain on the market.

Keywords: Minimum Quality Standard, Product Differentiation, Regulation, Consumer Harm, Bayesian Estimation, Heterogeneity

JEL Classification: L11, L13, L50, H23

Suggested Citation

Kotschedoff, Marco J.W. and Pachali, Max J., Higher Minimum Quality Standards and Redistributive Effects on Consumer Welfare (December 18, 2018). Available at SSRN: https://ssrn.com/abstract=3214249 or http://dx.doi.org/10.2139/ssrn.3214249

Marco J.W. Kotschedoff

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

Max J. Pachali (Contact Author)

Tilburg University - School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://sites.google.com/site/mjpachali/

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