Oct. 29, 2002
Consumers’ Resistance to GM-foods: The Role of Information in an Uncertain Environment
by
Wallace E. Huffman, Matthew Rousu, Jason F. Shogren, and Abebayehu Tegene*
*The authors are Charles F. Curtiss Distinguished Professor of Agriculture and Professor of Economics, Iowa State University; Research Economist, RTI International, Stroock Distinguished Professor of Natural Resource Conservation and Management, Department of Economics and Finance, University of Wyoming; and Program Leader and Agricultural Economist, Food and Rural Economics Division, ERS, U.S. Department of Agriculture.
Copyright 2002 by W. E. Huffman, M. Rousu, J. F. Shogren, and A. Tegene. All Rights Reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.
Helpful comments were obtained from Vernon Ruttan, Dan Bromley, and participants in a Seminar in the Applied Economics Department, University of Wisconsin. The authors gratefully acknowledge assistance from Daniel Monchuk and Terrance Hurley in conducting the auctions and assistance from Monsanto, in providing some of the products used in the experiment.
This work was supported through a grant from the Cooperative State Research, Education, and Extension Service, U.S. Department of Agriculture, under Agreement 00-52100-9617 and from U.S. Department of Agriculture, Economic Research Service, under agreement 43-3AEL-8-80125. Journal paper no. of the Iowa Agricultural and Home Economics Experiment Station, Ames, IA. Project 6590.
Abstract
Consumers’ Resistance to GM-Foods:
The Role of Information in an Uncertain Environment
By Wallace E. Huffman,
M. Rousu, J.F. Shogren, and A. Tegene
During the post-World War II era, the standard of living has risen steadily in the developed countries. One reason has been the steady introduction and adoption of new goods. Consumers, however, have not accepted all seemingly useful goods,, e.g., the Ford Edsel, electricity from nuclear power, irradiated meat and poultry. Also, during the 19th century in Europe, Luddites destroyed new machines for knitting and textile
manufacturing, smashed threshing machines, and pasteurized milk also experienced major opposition.
In the 21st Century, agricultural biotechnology has real potential for creating new, welfare-improving products. However, Greenpeace, Friends-of-the-Earth and other groups have been vocal in their opposition to GM-foods. This paper examines the market characteristics that push a consumer to resist GM foods, with emphasis on negative information and independent, third-party information. We show that negative GM-information pushes some consumers out of the market for GM-labeled foods and that independent third-party information dampens the effectiveness of negative information and increase the probability that consumers will value GM-foods positively.
Introduction The standard of living in developed countries grew considerably in the twentieth century. One reason has been the steady introduction of new goods and improvement in other goods. The standard of living for the U.S. population has increased during the past century due to the invention and adoption of many new goods (and services). Because of new technology, goods have improved in quality and new goods have been introduced, both frequently increasing social welfare. New goods and quality improvements have caused a major revision of the Consumer Price Index (CPI). The CPI was biased upwards by approximately 0.6 percent per year (Boskin et al, 1998, pp. 5-77), and estimates of increases in the prices of individuals goods have also been shown to be biased upwards by ignoring the effect of new products (Hausman, 1996). This bias estimate could be thought of as a lower bound on how much better off consumers are due to the introduction of new goods – which means that new goods and services alone caused welfare of U.S. citizens to (at least) double in the twentieth century. Not all new goods, however, have adopted, presumably because consumers judged that they would not be better off with the consumption of the new good relative to the consumption of the pre-existing good. Among passenger cars, the Ford Edsel and Chevy Corvaire were major flops. Also, early prospects for nuclear power were good, but major and persistent resistance developed in developing countries to the use of electricity generated nuclear power (Grübler,1996). This resistance has carried over to irradiated meat and poultry (Fox et al). The two nuclear examples are somewhat surprising because it is generally cheaper (financially and environmentally) to produce electricity by nuclear power than by coal or oil fired generating plants. Irradiated pork and other meats are free from harmful bacteria. The good attributes not withstanding, these goods have not been able to overcome the bad negative image of nuclear energy created by environmental groups like Greenpeace and Friends of the Earth. In the United States, these groups helped increase the public’s risk perception of nuclear power, forcing stringent safety standards to be enacted that contributed to a quadrupling of plant costs in just more than a decade (Ruttan, 2001). No new nuclear power plants have been ordered in the United States since 1978. Opposition exists to other low risk technologies. In Europe, the Luddites destroyed new machinery for knitting and weaving textiles between 1811 and 1816 because of prospects of job loss by a significant share of the textile-industry workers (Grübler, 1996). Also, in England during the 1830s, the Captain Swing Movement attacked and smashed mechanical threshing machines. In the United States, opposition to Pasteurization in the beginning of the 20th century was widespread, with opponents saying, among other things, that pasteurization was not needed and that consumers had the “right to drink raw milk” (Hotchkiss, 2001). It is noted in Pirtle (1926) that the slow adoption of pasteurization resulted in the thousands of deaths that could have been prevented.
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