Public goods and the value of product quality regulations: the case of food safety

Transcription

1 Publc goods and the value of product qualty regulatons: the case of food safety Stephen F. Hamlton a, Davd L. Sundng b, Davd Zlberman b a 23 Economcs Buldng, Unversty of Arzona, Tucson, AZ 85721, USA b 207 Gannn Hall, Unversty of Calforna, Berkeley, CA 94720, USA Abstract The paper examnes preferences for product qualty regulatons. Our premse s that preferences for product qualty regulatons derve from preferences for both prvate and publc goods. The model s used to explan publc atttudes toward a referendum measure to elmnate pestcde resdues on food. Results from a survey of consumers are consstent wth the conceptual model and show that preferences for publc goods nfluence support for the product qualty regulaton. The results help explan why consumpton behavor s a poor predctor of poltcal behavor, and have mplcatons for methods that use votng and market behavor to value publc goods. Keywords: Votng choce, Consumer behavor; Publc goods 1. Introducton Product qualty regulatons have attracted consderable attenton as a topc of publc concern and have emerged as a major polcy queston n the Unted States and elsewhere. A prme example of ths emphass s the successful effort to secure passage of the Food Qualty Protecton Act of 1996, legslaton that addresses food

2 qualty by, among other measures, reducng the amount of pestcde resdue allowed on fresh and processed foods. Our premse s that product qualty regulatons can affect consumer welfare n four ways. The most obvous effects of such regulatons are to ncrease market prces and to ncrease the provson of some desrable attrbute of the product. For example, product qualty regulatons are sometmes desgned to reduce the ncdence of njury, as n the case of mandated safety standards such as chldproof caps on medcaton, protectve packagng, nfant car seats, flame-retardant fabrc, and arbag requrements. These nterventons reduce rsk and ncrease the consumer s level of health. Thrd, product qualty regulaton may provde afflated publc goods. These publc goods are especally affected by regulatons drected at producton methods. For example, a regulaton that requres tuna to be caught n a dolphn-safe manner enhances envronmental qualty. Altrusm may also be mportant n product qualty decsons, as evdenced by the recent effort by manufacturers such as Nke, Reebok and K-Mart to ensure consumers that ther products are made 1 wthout the use of chld or sweatshop labor. Indeed, product qualty regulaton need not have any effect on consumptve characterstcs at all: for nstance, dolphn-safe tuna tastes no dfferent than conventonal tuna, but may be more valued by consumers nonetheless. Fnally, product qualty regulaton that restrcts choce n the marketplace can result n a loss of optons to consumers. Product qualty regulatons tend to change slowly over tme once enacted, they are unlkely to be repealed anytme soon snce the transacton costs of legslaton and mplementaton of law are hgh. Thus, f the government regulates product qualty n a way that reduces choce, there s a loss of freedom, whch s a publc good tself, snce t cannot be dened to any consumer and s enjoyed by all consumers smultaneously (Cooter, 2000). In the case consdered n ths paper, regulatng that all food be produced wthout pestcdes constrans choce now and n the future snce both conventonal and organc produce are avalable currently n the market. Even a consumer wth a hgh valuaton of the attrbute pestcde-free wll dslke the loss of future optons. Ths paper examnes preferences for product qualty regulatons that nvolve the jont producton of prvate and publc goods. We consder the case of food safety regulaton, as mandated by the Food Qualty Protecton Act (FQPA) of 1996, n whch a mandated reducton n the use of agrcultural pestcdes ncreases the prce of food, reduces ndvdual health rsk, reduces opton value and enhances envronmental qualty. Our fndngs drect attenton to the fact that publc atttudes toward product qualty regulatons may derve from atttudes about both prvate and publc goods. 1 See Vscus et al. (1988) on altrusm and consumer safety regulatons.

3 We focus on pestcde regulaton because ts jont producton nature s exceptonally clear. The majorty of the publc s aware of both the connectons between pestcde resdues and personal health and between pestcde use and envronmental qualty. It s well known that pestcde resdues, partcularly on fresh fruts and vegetables, pose health rsks from cancer and other llnesses, and consumers are famlar wth makng market choces about the level of pestcde rsk to whch they and ther famles are exposed. At the same tme, the adverse consequences of chemcal nputs such as pestcdes and fertlzers on fsh and wldlfe populatons has been wdely recognzed snce at least the publcaton of Rachel Carson s Slent Sprng. Workng wth a detaled n-person survey of consumers, we frst characterze wllngness to pay for an absence of pestcde resdues on food, then examne support for government regulaton of pestcde resdues. A strkng feature of the raw survey results, whch s confrmed by more thorough econometrc analyss, s that some ndvduals are not wllng to pay a premum for pestcde-free food, but nonetheless support a ban on the use of pestcdes n agrculture. Ths seemngly paradoxcal result s explaned by the fact that food qualty regulaton jontly produces both prvate and publc goods: an ndvdual wth a strong preference for envronmental qualty but wth lttle concern for personal health rsk posed by pestcde exposure may well favor regulaton of pestcde resdues. Another fndng of the emprcal analyss s that many ndvduals do not support the pestcde regulaton even though they express a hgh wllngness to pay for the absence of pestcde resdues on ther food. Ths result ndcates that freedom of choce s also mportant, and that some consumers hghly value preservng ther future choces. In the status quo, these consumers are able to avod pestcde resdues by consumng organc produce. For them, the man beneft of the pestcde regulaton s that consumpton of pestcde-free food does nothng to change the level of envronmental qualty snce one ndvdual s mpact on the total amount of pestcde use s mnscule. Thus, the regulaton ncreases the level of one publc good (envronmental qualty) but decreases the level of another (future freedom of choce). The fndng that jont producton of publc and prvate goods s a salent feature of product qualty regulaton rases the nterestng possblty that ndvduals may support such nterventons through votng or other means even though ther consumpton behavor suggests otherwse. Ths follows for two reasons. An ndvdual may have a low wllngness to pay for pestcde-free food, but care deeply about the envronment. Ths voter may support the regulaton even though she dd not consume organc produce. Alternatvely, a consumer may have a hgh wllngness to pay for an absence of pestcde resdues, but place a hgh opton value on retanng future choces. Ths consumer may oppose the ban even though she has a track record of payng a premum for pestcde-free food, and may even have a hgh level of concern for the envronment. Thus, referendum behavor may

4 be a poor predctor of wllngness to pay, and consumpton behavor may be a poor predctor of support for publc polces that change product qualty. The observaton that consumpton behavor may dffer markedly from poltcal behavor has mplcatons for the use of technques that nfer the value of publc nterventons from consumer choces, and for methods that attempt to value publc goods by examnng referendum behavor. A common method employed n the envronmental economcs lterature s to value regulatons by examnng consumer expendtures on avodance goods, as n Blomqust (1979), Dards (1980), 2 Atknson and Halvorsen (1990) and Dcke and Gerkng (1997). For example, the value of a polcy to reduce the ncdence of skn cancer by strengthenng the ozone layer mght be deduced by aggregatng expendtures on sunscreen, hats and other avodance goods. Such a technque does not adequately address support for the regulaton, snce the publc act of strengthenng the ozone layer may have other effects. If the ozone layer s protected by reducng emssons of harmful chemcals, then there mght be envronmental qualty mprovements that are afflated wth the regulaton, but not wth the purchase of avodance goods. Thus, usng market choces to value the effect of protectng the ozone layer wll msestmate the true level of support for the nterventon. Smlarly, t s clear from our estmaton results that one would obtan a based measure of the value of the FQPA by examnng only market-based preferences for pestcde-free food. 3 The remander of the paper n structured as follows. Secton 2 develops a smple model of consumer preferences regardng market and votng choces for food qualty n the context of pestcde resdue avodance. Secton 3 descrbes our data and emprcal methods. Secton 4 presents estmaton results from a survey of consumer preferences for pestcde reductons, and, n Secton 5, concludng comments are provded. 2. The value of food qualty regulatons: prvate and publc goods The followng model frames our study of ndvdual preferences toward food qualty regulatons, and how these preferences compare to consumpton behavor. Suppose an ndvdual has an ndrect utlty functon comprsed of the followng arguments: food prces (P), health (H ), envronmental qualty (N), and freedom of choce n consumpton (F ). For analytc convenence, all other arguments n the 2 See the survey by Vscus (1996). Note also that the Dcke and Gerkng study rased the possblty that regulatons can jontly provde publc and prvate goods. 3 The same argument can be made about so-called travel cost methods that measure the value of protectng some natural resource by the amount of money expended by ndvduals to recreate there. Agan, government acton to preserve a natural resource changes prces (and taxes), provdes recreatonal opportuntes, affects the level of envronmental qualty and constrans future choces.

5 utlty functon are treated as exogenous factors and suppressed. These three arguments comprse a smple theoretcal framework that nests an ndvdual s wllngness to pay (WTP) for food qualty n a broader model of preferences for food qualty regulaton. Let DP* denote ndvdual s wllngness to pay for the elmnaton of detary pestcde resdues, whch we defne as the value of the concomtant ncrease n health from a status quo level, H 0, to an augmented level, H 1. Normalzng ntal food prces to one, ths defnton allows the WTP of an ndvdual to be characterzed as the soluton to V (H,1 1DP*, F, N ) 5V (H, 1, F, N ), (1) where V (? ) s the ndrect utlty functon of ndvdual and F 0 and N 0 are the status quo levels of opton value and envronmental qualty. A lnear approxmaton of the ndrect utlty functon, evaluated at the ndfference pont defned by (1), yelds V H DP * 5 2 ] DH, (2) V P where DH 5 H 1 2 H 0 denotes the health beneft ganed by ndvdual from elmnatng pestcde resdues n food consumpton, and where V H and V P denote the margnal utlty of health and the margnal utlty of the prce change, respectvely. In (2), WTP depends on the perceved change n health from avodng pestcde resdues by consumng pestcde-free food, and on the scalng of ths health effect by the rato of margnal utltes of health and ncome. Now, consder an ndvdual s preference for a publc polcy elmnatng pestcde resdues on food. Food qualty regulaton that bans the use of pestcdes may have four major effects on an ndvdual: an ncome effect assocated wth the resultng change n food expendture, a health effect ganed through the elmnaton of pestcde resdues on food, a loss of future consumpton choces whch mples a loss of opton value, and an envronmental qualty effect from reduced chemcal use n agrculture. Let N 1 denote the augmented state of envronmental qualty followng a ban on pestcde use, let F 1 denote the reduced range of future consumpton choces, and let DP denote the percentage change n food prces for ndvdual as a result of the pestcde ban. Note that DP can dffer from WTP, DP*, as defned n (2). Now consder the votng decson on a referendum to ban pestcde use n agrculture. To begn, suppose that each ndvdual votes for the proposal that 4 gves the hghest level of utlty. Indvdual then favors a referendum to ban the use of pestcdes f the utlty level assocated wth a ban, V (H 1,11DP, F 1, N 1 ), 4 The conceptual underpnnngs of ths approach are dscussed by Deacon and Shapro (1975).

6 0 0 0 s above that of the status quo, V (H, 1, F, N ), and otherwse votes aganst such regulaton. We can express the change n utlty from the publc polcy by takng a lnear expanson of ndrect utlty about the status quo equlbrum as follows: dv 5V DH 1V DP 1V DF 1V DN (3) H P F N where DN 5 N 1 2 N 0 denotes the change n envronmental qualty that results 1 from a decreased ncdence of chemcal use n food producton, and DF 5 F 2 F 0, 0 s the loss of consumpton optons. Upon substtuton of from (2), a manpulaton of (3) results n H V F VN dv 52V P DP * 2DP 2 ] DF 2 ] DN. V V P In (4), the utlty of ndvdual ncreases wth WTP for pestcde-free products and wth the margnal utlty of envronmental qualty, but decreases wth the percentage change n food prces followng the ban on pestcde use and decreases wth the restrcton on future consumpton choces. Whether an ndvdual supports or opposes the ban depends on the nterplay of these factors. If WTP exceeds the ncreased market prce of food followng the pestcde ban, then an ndvdual wll vote for the ban so long the value of lost freedom n consumpton (V DF ) does not more than offset hs value of the envronmental F qualty mprovement (V DN). In general, an ndvdual wll vote for the ban so N long as V (DP 2DP*) 1V DF 1V DN $ 0. Thus, even an ndvdual who P F N values pestcde-free food less than the ncrease n expendture requred to purchase t (.e., DP 2DP* $ 0) may stll vote for the pestcde ban so long as her valuaton of the afflated change n envronmental qualty, or V DN, s suffcently N large. Conversely, an ndvdual who does value pestcde-free food more than the ncrease n expendture needed to purchase t wll oppose the regulaton f her valuaton of preservng freedom of choces, or 2V DF, s suffcently hgh. F An mplcaton of ths framework s that consumpton behavor and votng behavor may be qute dfferent. An ndvdual wll choose to purchase pestcdefree food whenever DP 2DP* # 0. Substtutng for DP* as defned by (2), t follows that an ndvdual wll consume pestcde-free food when 2V DP 2V P H DH, 0. As for the votng decson, t follows from the expresson for the change n ndrect utlty assocated wth the pestcde ban that an ndvdual wll experence an ncrease n utlty f 2V DP 2V DH # V DN 1V DF. P H N F Comparng these two expressons, we see that some ndvduals may choose not to consume pestcde-free food, but wll stll vote to ban the use of pestcdes n agrculture. Thus, WTP and referendum choces are not the same, and ndvduals market and poltcal behavor may dffer dependng on ther characterstcs. Ths basc framework can be appled to other product qualty regulatons. Consder the case of a regulaton on producton methods such a prohbton on chld labor or on ncdental kllng of dolphns to harvest tuna. In ths stuaton, the P J (4)

7 market prce of the good wll ncrease followng a ban on the offensve producton technque, future optons wll shrnk, and the level of some publc good wll ncrease (e.g., chld welfare or the level of the dolphn populaton). Note, however, that the regulaton wll not affect a prvate good analogous to health n the pestcde example (.e., DH 5 0). That s, the regulated product s dentcal to the orgnal product from the consumer s pont of vew. In ths case, ndvduals would not freely consume a product produced by an alternatve method due to the free-rder problem because they perceve that ther consumpton choces have no effect on the level of provson of the publc good. However, as long as an ndvdual values freedom and the afflated publc good (.e., as long as V F DF 1V DN $ 0), then they may well vote for the ban on the N offensve producton technque. In partcular, an ndvdual wll favor the ban whenever 2V P DP #V F DF 1V N DN. Conversely, f there s no publc good mpact assocated wth a product qualty regulaton, then DN50 n (4). In ths case, votng choces may be even more dfferent than market choces snce the regulaton nvolves the loss of one publc good (future consumpton choces) wthout the offsettng ncrease n another (envronmental qualty). Not surprsngly, such referenda are rare, snce the market provdes an effcent amount of the desrable product qualty and publc nterventon s not needed. 3. Emprcal analyss The conceptual model of Eqs. (2) and (4) can be expressed n the followng recursve form that s convenent for estmaton: WTP 5 a 1 bx 1 (5) Vote 5 g 1 d WTP 1 fy 1h, (6) Estmaton of the votng equaton must account for the fact that WTP s endogenous. It s also nformatve to compare the coeffcents between the two regressons to see how demographc factors affect WTP and votng. Eq. (5) s based on the assumpton that WTP s a lnear functon of exogenous varables, X. These varables are prmarly household, demographc and ethnc characterstcs that may nfluence votng. The coeffcents a and b are unknown, and s an error term. Followng Eq. (4), the estmated votng Eq. (6) supposes that an ndvdual s preference for a ban on pestcde use s a functon of the utlty dfference between alternatves. Exogenous factors, denoted as Y, and stated WTP are hypotheszed to explan votng choces. Included n the matrx Y s an ndvdual s stated level of concern

8 for the envronment, whch s a publc good affected by pestcde use. 5 Personal characterstcs are also related to atttudes about government restrcton of choce. The effect of varaton n opton value s embedded n the coeffcents on exogenous factors. The parameters g, d and f are unknown and s an error term. Estmaton of the WTP Eq. (5) s carred out usng standard, left-censored Tobt snce responses are truncated at 0. Estmaton of the votng Eq. (6) must account for the fact that WTP s endogenous. To estmate the parameters of the votng equaton, we use Probt wth nstrumental varables (Maddala, 1983); estmated 6 WTP from (5) s used as the nstrument. Identfcaton s ensured snce some explanatory varables are excluded from the votng equaton. We descrbe the data and choce of regressors shortly. The data requrements of ths model pose another problem: how an ndvdual votes on a partcular food qualty regulaton s prvate nformaton. Consequently, we derve our sample from survey data. The samplng frame s comprsed of resdents of the Greater Bay Area and Central Valley of Calforna, an area where consumers have experence wth votng on food qualty and envronmental qualty regulatons. A total of 233 n-person surveys were conducted at supermarket produce counters. To reflect the blngual nature of many Bay Area ctes, 10% of the surveys were admnstered n Spansh. Each ndvdual was asked to state hs or her WTP for pestcde-free food and to descrbe how he or she would vote on a referendum measure to ban the use of pestcdes to produce food. Intervewers also collected nformaton on household demographcs and food consumpton patterns. Nearly all of the 17 survey locatons represented n our sample (ncludng major chans especally Safeway, whch domnates the local market) offer both conventonal and organc produce, and pestcde-free food s also avalable from specalty stores and farmers markets. The noton of pestcde-free food s qute real to most food shoppers, and those n our sample had the opportunty to observe actual prce dfferentals between conventonal and organc produce. Snce these prce dfferentals should be representatve of the prce mpacts of the pestcde ban, t s reasonable to assume that consumers have nformed perceptons about the cost of the referendum. The survey collected nformaton on varous ndvdual and household characterstcs. Respondents were quered about whether they would vote for a referendum measure to ban pestcde use n agrculture, and also about ther wllngness to pay to avod pestcde resdues on food (.e., WTP for pestcde-free food). WTP s expressed n percentage terms (e.g., a percentage ncrease n food prces). These dependent varables were regressed on a collecton of varables representng household characterstcs and consumpton behavor. Respondents were asked to state ther level of concern for the envronment, 5 Ths utlty-dfference framework for estmatng a votng equaton s smlar to that of Deacon and Shapro (1975), Bergstrom et al. (1988) and Hoyt and Lee (1998). 6 Uncorrected WTP, or WTP ˆ 5 â 1 bx ˆ, s used as the nstrument.

9 whch we measure as a dscrete (0/ 1) varable. Educatonal attanment was also measured as a dummy varable: respondents were asked f anyone n ther household had attaned a 4-year college degree. Smokng has well-documented health effects, and we therefore asked respondents how many packs of cgarettes they consumed per day. Next, survey respondents were asked how many chldren were lvng n the household, f any. They were also asked to report ther household s weekly food expendture. Ths varable was measured contnuously, and respondents were asked to report only expendture on food prepared at home (.e., bought from a store and consumed at home) and to exclude expendtures on meals eaten away from home. Respondents were also asked about ther level of household ncome. We asked respondents to report ncome n ranges to reflect the fact that most ndvduals do not have precse nformaton on ther level of household ncome, and also to avod beng too nvasve. Income was grouped nto three classes (low, medum and hgh) and measured by two dummy varables (one for low ncome and one for hgh ncome). Low ncome was consdered to be a household ncome of less than $20 000, and hgh ncome was consdered to be an ncome of more than $ Fnally, we asked respondents to state whch racal group they most dentfy wth (Caucasan, Afrcan-Amercan, Latno, Asan-Amercan or Other). Results were measured by a set of dscrete varables, wth Caucasan beng the reference group. Respondents were also asked to state ther gender. Male was chosen as the reference group, so women were gven a value of 1 for ths varable. Of those surveyed, 40.34% were n favor of the proposed pestcde regulaton, a fndng that s consstent wth the results of Calforna s Proposton 128 ntatve n 1990 where nearly 40% of the populaton voted to prohbt the use of broad classes of pestcdes n agrculture. Fg. 1 compares the frequency dstrbuton of WTP responses among ndvduals who voted for the pestcde ban to that among Fg. 1. WTP responses for subgroups votng for and aganst the proposed ban.

10 ndvduals who unfavorably vewed the proposal. Generally, those consumers expressng support for the ban had a hgher percent wllngness to pay for pestcde-free food. However, one nterestng result from ths graphcal analyss s that some ndvduals expressed support for the referendum measure but stated no wllngness to pay for pestcde-free food. Whle not conclusve, ths evdence suggests that, to some ndvduals at least, votng s perceved to affect more than just product qualty. Another sgnfcant result, whch follows drectly from Fg. 1, s that some ndvduals expressed hgh WTP for pestcde-free food, but stll opposed the pestcde ban. Ths observaton s consstent wth our premse that consumers value preservng ther freedom of choce. Ther reasonng may be opton-theoretc. That s, consumers may understand that regulaton changes slowly, and realze that even f they are wllng to pay to consume entrely organc produce today, that they may wsh to make other choces n the future. Or, some consumers could smply resent government ntruson nto ths aspect of ther lves. Table 1 shows the correlaton matrx for the votng preference on pestcde regulaton (where a favorable response takes untary value), the expressed WTP to avod pestcde resdues n food consumpton, and the varous exogenous decson factors employed n the model. Notce that the correlaton between WTP to elmnate pestcde resdues on food and a favorable vote on pestcde regulaton s postve, but small relatve to the correlaton between votng choce and other varables. A favorable vew of a pestcde ban s more strongly correlated wth chldren n a household and wth envronmental concern than wth WTP for elmnatng pestcde resdues on food. Not surprsngly, ncome s sgnfcantly related to envronmental concern n the sample, as low (hgh) ncome respondents vew envronmental protecton to be less (more) mportant than do mddle ncome ndvduals. In addton, there s a postve correlaton between chldren n a household and concern for the envronment, whch s consstent wth the bequest motves assocated wth envronmental preservaton. The educaton level of the hghest-educated household member s postvely correlated wth household ncome, but negatvely correlated wth chldren n the household. There s also a strong negatve correlaton between educaton and cgarette consumpton, whch s consstent wth the fndng of Kenkel (1990) that educatonal attanment has a postve nfluence on personal health. Interestngly, the majorty of demographc factors n Table 1 nfluence WTP and votng behavor n an opposng fashon. For example, educaton s negatvely correlated wth a favorable vote on pestcde regulaton but postvely correlated wth WTP, and chldren n a household s postvely correlated wth a preference to ban pestcdes but negatvely correlated wth WTP. Household ncome below a baselne mddle-ncome level s postvely correlated wth a favorable vew of pestcde regulaton but negatvely correlated wth WTP, wth the converse holdng for relatvely hgh-ncome households.

11 Table 1 Regressor correlaton matrx Ban WTP Envro- Educa- Smokng Chldren Exposure Female Black Latno Asan Other Low Hgh nment ton ncome ncome Ban 1 WTP Envronment Educaton Smokng Chldren Exposure Female Black Latno n.a. 1 Asan n.a. n.a. 1 Other n.a. n.a. n.a. 1 Low ncome Hgh ncome n.a. 1

12 4. Results 4.1. Wllngness to pay Results of the Tobt estmaton of (5) are presented n the frst column of Table 2. Educaton, gender, low ncome, and Afrcan-Amercan and other ethncty are postvely assocated wth stated percent wllngness to pay for the food qualty attrbute pestcde-free at conventonal levels of sgnfcance. Household food expendture, low ncome and cgarette consumpton are negatvely assocated wth WTP. The sgn of the coeffcent on the low-ncome group conforms to the predcted relatonshp, as margnal utlty of ncome nfluences WTP nversely n (2). Expresson (2) also ndcates that hgh-ncome respondents have greater WTP. The lack of sgnfcance of ths coeffcent s not partcularly surprsng, however, gven the dmnshng margnal utlty of ncome. The negatve sgn of the coeffcent on household food expendture suggests that WTP s concave wth respect to household food expendture. The coeffcent on chldren s negatve, but nsgnfcant. Ths result may seem surprsng n lght of the recent evdence that ndcates greater senstvty to pestcde resdues among chldren than adults (see Natonal Academy of Scences, 1993), but s explaned by several countervalng factors. Lfe-cycle models of health demand (for example, Arthur, 1981; Cropper and Sussman, 1988) fnd age to be a theoretcally mportant determnant of WTP that decreases the value of avodng long-term health rsks, a result that suggests a postve assocaton between chldren n a household and WTP. Indvduals wth chldren purchase food for members of a household that are younger, on average, than n households wthout chldren. However, per capta ncome also declnes n the sample as famly sze ncreases, whch tends to make pestcde-free produce relatvely more expensve for larger households. Cropper and Sussman (1988) also fnd famles wth chldren to have sgnfcantly hgher dscount rates, whch would reduce the costs assocated wth long-term decrements n health. Not surprsngly, the coeffcent on cgarette consumpton s negatve and sgnfcant n the WTP equaton. The consumpton of cgarettes s lkely to be nversely related to the perceved change n health from reduced exposure to pestcde resdues and may also ndcate a greater wllngness to accept latent health hazards. The long-term health effect assocated wth the elmnaton of pestcde resdues may be perceved as havng only lmted effectveness for ndvduals not supplementng health n other dmensons. The sgn and sgnfcance of ths coeffcent ndcates that personal health motvatons are an mportant determnant of an ndvdual s wllngness to pay to elmnate pestcde resdues on food. Educaton s lnked to greater percent wllngness to pay for pestcde-free food. Ths fndng suggests that educated ndvduals may more adequately realze causal lnks between pestcde resdues and latent health effects. Educaton has been

13 Table 2 Estmaton results WTP Intercept Vote * Chldren * Household food * expendture Educaton * Concern for * envronment Female * * Black * * Asan Latno * Other * Low ncome * Hgh ncome Smokng * WTP * Scale Log lkelhood Observatons % Correct 78 *Sgnfcance at the 5% level or below. found to be sgnfcantly related to health-mprovng actvtes n a number of other studes. 7 7 In addton to the Kenkel study cted earler, Blomqust (1979) found that ndvduals wth college educaton are more lkely to engage n precautonary behavor (.e., wearng seat belts) to avod njury n automoble accdents.

14 Basc demographc factors are also systematcally related to WTP. There s a strong relatonshp between gender, ethncty and the stated value of avodng pestcde resdues. On average, women n the sample have a hgher wllngness to pay than men do, and Afrcan-Amercans and members of the other ethnc group have a hgher WTP than Caucasans. Smlar relatonshps between ethnc dentfcaton, gender and wllngness to pay to avod health rsks have been documented n other economc studes (Blomqust, 1979; Vscus et al., 1988; Krupnck and Cropper, 1992). Fnally, t s nterestng to note that the coeffcent on envronmental concern was nsgnfcant n the WTP regresson. Ths fndng ndcates that ndvduals understand the dstncton between ther personal consumpton choces and the provson of envronmental qualty. In the uncorrected correlaton analyss, envronmental concern s somewhat correlated wth WTP. However, ths relatonshp becomes nsgnfcant after controllng for consumpton behavor and demographc characterstcs. Wllngness to pay for pestcde-free food appears to be a based on an ndvdual s valuaton of personal health rather than a statement about the mportance of the envronment. In ths sense, ndvduals understand that purchasng pestcde-free produce s not a poltcal act Votng behavor The second column of Table 2 reports the estmates of Eq. (6). Overall, the dscrete choce model fts the data well, correctly classfyng over 77% of the responses. Chldren, envronmental concern, gender, Afrcan-Amercan ethncty and wllngness to pay for pestcde-free food ncrease the lkelhood of support for the pestcde regulaton; the coeffcents on these varables are all sgnfcant at the 8 5% level. Smokng s excluded from the votng equaton for two reasons. From a theoretcal pont of vew, n Eq. (4), the utlty dfference from the pestcde ban does not nclude V or DH, whch are the prmary factors n the model that are H nfluenced by smokng, snce health effects are subsumed n WTP. From a practcal pont of vew, excludng smokng from the votng equaton also ensures dentfcaton of (6). 9 As predcted by the conceptual model, wllngness to pay to avod pestcde resdues s postvely assocated wth a wllngness to support the pestcde 8 Note that the ntercept s also negatve and sgnfcant. Part of ths coeffcent may reflect voters dslke for restrctons on freedom of choce n the marketplace. 9 It should be noted that a n naıve regresson estmatng votng as a functon of all varables, the coeffcent on smokng was nsgnfcant, havng a P value of 0.5. If ndvduals who smoke not only place lower values on consumpton of pestcde-free food, but also have dfferent vews of the value of a clean envronment, than ther non-smokng neghbors, then the smokng varable may not be a vald nstrument.

15 regulaton, and s hghly sgnfcant. Thus, ndvdual valuaton of the food-qualty attrbute pestcde-free clearly nfluences the votng decson. The coeffcent on WTP s not the only sgnfcant varable n the estmated votng choce equaton, however. Ths fndng suggests that, as expected, prvate valuatons of food qualty mprovements do not completely determne ndvdual preferences for food qualty regulaton. As predcted by the conceptual model, stated level of concern for the envronment ncreases the lkelhood that an ndvdual wll support the pestcde ban. The ncentve to provde publc goods such as envronmental qualty through collectve choces appears to be an mportant source of value of food qualty regulatons. Further, t s mportant, and consstent wth the theoretcal model, that envronmental concern was nsgnfcant n the WTP equaton, but hghly sgnfcant n the votng equaton. Ths fndng clearly supports the hypothess that dfferent factors nfluence the consumpton and votng decsons. Concern for the envronment rases the amount that an ndvdual would be wllng to pay for product qualty regulaton above and beyond the value of the prvate benefts from the regulaton. To quantfy ths effect, note that the estmated coeffcents mply that a 1% ncrease n WTP ncreases the lkelhood of votng for the referendum by 2.5%. Snce a hgh level of envronmental concern ncreases the lkelhood of supportng the referendum by 39%, then the mpact of concern for envronmental qualty s equvalent to a 16% ncrease n WTP for pestcde-free food (0.39/ ). These estmates suggest that envronmental-leanng ndvduals value the regulaton by 16% tmes ther food expendture because of the envronmental effect alone. Ths amount must be added to the amount of WTP to obtan a true measure of the value of the regulaton. 10 As n the WTP equaton, demographc characterstcs also nfluence the votng decson. 11 For example, the number of chldren n the household s sgnfcantly related to support for the referendum. Ths fndng s consstent wth the bequest motve for envronmental concern snce ndvduals may wsh ther chldren to nhert a hgh level of envronmental qualty. Smlar fndngs related to the nfluence of chldren on valuaton have been reported by Cropper and Sussman (1988), among others. Latno ethncty s postvely assocated wth a favorable vew of pestcde 10 Future research should attempt to obtan explct estmates of the effect of preferences for unrestrcted choce on preferences for the regulaton. 11 The workng assumpton behnd the survey and the econometrc model s that all ndvduals n the sample would observe the same prce changes resultng from the pestcde regulaton, and thus DP would be the same for all ndvduals. However, t s possble that even though market prces wll be the same for all consumers after the pestcde ban, ndvduals may have dfferent perceptons of the mpacts of the ban ex ante. These perceptual dfferences may be embedded n the demographc and consumpton varables n the coeffcents. It s dffcult to explan why women or Afrcan-Amercans, for example, would expect lower prce mpacts of the regulaton (and thus hgher propensty to vote for the ban) than would other groups. Nonetheless, ths effect may partly explan the pattern of estmates.

16 regulaton, but s an nsgnfcant determnant of WTP. The proclvty of Latno respondents to favor pestcde controls s nterestng, especally snce Latno ethncty and envronmental concern are negatvely correlated n Table 1. It s possble that ths fndng reflects the fact that the vast majorty of farm workers n Calforna (who are routnely exposed to pestcdes, as descrbed n Sundng and Zvn (2000)) are from Mexco and other Latn Amercan countres. Latno respondents n the San Francsco Bay Area may dentfy wth ths group of workers, ether because they themselves have worked n agrculture, or because they have frends and relatves employed there. Thus, the postve coeffcent may suggest that the provson of other publc goods such as the welfare of feld workers may be mportant when consderng preferences toward pestcde regulatons. We do not press the pont here, because we have only the most fragmentary data on these relatonshps, but Latno respondents may be more senstve to worker safety ssues n agrcultural producton than are other ethnc groups. Vscus et al. (1988) have documented the exstence of smlar altrusm effects wth respect to other rsk reducton measures. Household ncome level does not nfluence the votng decson, ndependent of the other explanatory varables. Both ncome coeffcents are nsgnfcant, although they are of opposte sgn. Interestngly, ncome does have a systematc effect on WTP, as demonstrated by the estmaton of (5). Ths s evdence, albet ndrect, that dfferent factors are at play n the consumpton and votng decsons. Smlarly, household food expendtures are negatvely assocated wth WTP, but have an nsgnfcant relatonshp to support for the referendum. 5. Concluson The paper explores the factors determnng support for publc polces that regulate the level of product qualty. Our man hypothess s that product qualty regulatons can affect consumer welfare n four ways: by ncreasng market prce, by ncreasng the provson of some desrable attrbute of the product, by restrctng consumer freedom and by affectng the provson of other, afflated publc goods. For example, regulaton that requres mported tuna to be dolphnsafe enhances the dolphn populaton and the promoton of free-range poultry or cosmetcs that are not tested on anmals reduces the ncdence of anmal cruelty. Even the recent effort by manufacturers such as Nke, Reebok and K-Mart to ensure consumers that ther products are made wthout the use of chld or sweatshop labor affects the level of publc goods. The paper develops a conceptual model of product qualty regulatons that ncludes mpacts on publc goods (n partcular the range of consumer choce and envronmental qualty), and apples the framework to the case of the Food Qualty Protecton Act of 1996 that lmts allowable levels of pestcdes on food by restrcton the use of pestcdes n agrculture. Ths regulaton wll change relatve

17 prces, mprove food safety and provde publc goods n the form of enhanced fsh and wldlfe populatons. An nterestng mplcaton of ths framework s that consumpton behavor and votng behavor may be qute dfferent. In partcular, an ndvdual may ratonally express no WTP for pestcde-free food, but stll express support for a referendum measure bannng pestcde use. Personal consumpton choces do not nfluence the level of publc goods snce an ndvdual has a mnscule effect n the market. However, a publc polcy to ban pestcde use wll nfluence envronmental qualty, and f the ndvdual cares enough about ths publc good, then she may support the pestcde ban even f her WTP for pestcde-free food s less than the actual prce dfference between conventonal and organc produce. Thus, WTP and referendum choces are not the same, and ndvduals market and poltcal behavor may dffer dependng on ther personal characterstcs. Further, an ndvdual may express hgh WTP for pestcde-free food and a hgh level of concern for the envronment, both factors that would tend to predct support for the regulaton, yet stll oppose the referendum f they dslke longlastng restrctons on consumpton choces. That s, even ndvduals who have green proclvtes may stll oppose the ban f they resent the government lmtng ther future optons. An econometrc model s specfed to estmate support for the pestcde ban, takng account of the fact that WTP for pestcde-free food s endogenous. Estmaton s carred out usng data from a survey of food shoppers n the Greater San Francsco Bay Area. Each ndvdual was asked to state hs or her WTP for pestcde-free food and to descrbe how he or she would vote on a referendum measure to ban the use of pestcdes to produce food. Intervewers also collected nformaton on household characterstcs and food consumpton patterns. Results of the WTP estmaton are consstent wth the conceptual model, and wth the fndngs of other studes of avodance expendtures. Educaton, gender, low ncome, and Afrcan-Amercan and other ethncty are postvely assocated wth WTP for the food qualty attrbute pestcde-free at conventonal levels of sgnfcance. Household food expendture, low ncome and cgarette consumpton are negatvely assocated wth WTP. As predcted by the conceptual model, wllngness to pay to avod pestcde resdues s postvely assocated wth a wllngness to support the pestcde regulaton, and s hghly sgnfcant. Thus, ndvdual valuaton of the food-qualty attrbute pestcde-free clearly nfluences the votng decson. The coeffcent on WTP s not the only sgnfcant varable n the estmated votng choce equaton, however, and prvate valuatons of food qualty mprovements do not completely determne ndvdual preferences for food qualty regulaton. As predcted by the conceptual model, a hgh level of concern for the envronment ncreases the lkelhood that an ndvdual wll support the pestcde ban. The ncentve to provde publc goods such as envronmental qualty through collectve choces s an mportant source of value of the pestcde regulaton.

18 Our study provdes evdence that a potentally sgnfcant dsparty exsts between the value of marketable attrbutes of product qualty and the value of product qualty regulatons. Support for a referendum measure s a poor proxy of wllngness to pay, and a poor measure of the value of the afflated publc good of envronmental qualty. Thus, care must be exercsed n attempts to nfer the value of rsk-reducton polces from prvate averson actvtes or other ndvdual actons. Consumer preferences for product qualty regulatons may reflect not only the value of these prvate benefts, but also the addtonal benefts assocated wth the provson of publc goods. Smlarly, care must also be exercsed when attemptng to nfer the value of publc goods from referendum choces snce publc acton may affect the level of publc goods as well as ones that can be provded by the market. Acknowledgements Ths research was sponsored by the US Envronmental Protecton Agency and the Calforna Department of Food and Agrculture. The opnons expressed here do not necessarly reflect those of the fundng agences. The authors thank George Judge, Theodore Keeler, Ethan Lgon, Jeff Perloff, and Elsabeth Sadoulet, as well as semnar partcpants at UC Berkeley, UC Santa Barbara, Hebrew Unversty, Iowa State Unversty, Unversty of Maryland and Stanford Unversty. Natonal Research Councl, Commttee on Pestcdes n the Dets of Infants and Chldren. Pestcdes n the Dets of Infants and Chldren, Washngton, DC. Natonal Academy Press, Sundng and Zlberman are members of the Gannn Foundaton of Agrcultural Economcs. References Arthur, W., The economcs of rsks to lfe. Amercan Economc Revew 71, Atknson, S., Halvorsen, R., Evaluaton of rsks to lfe: evdence from the marketplace for automobles. Revew of Economcs and Statstcs 72, Bergstrom, T., Roberts, J., Rubnfeld, D., Shapro, P., A test for effcency n the supply of publc educaton. Journal of Publc Economcs 35, Blomqust, G., Value of lfe savng: mplcatons of consumpton actvty. Journal of Poltcal Economy 87, Cooter, R., In: The Strategc Consttuton. Prnceton Unversty Press, Prnceton. Cropper, M., Sussman, F., Famles and the economcs of rsks to lfe. Amercan Economc Revew 78, Dards, R., The value of a lfe: new evdence from the marketplace. Amercan Economc Revew 70, Deacon, R., Shapro, P., Prvate preference for collectve goods revealed through votng on referenda. Amercan Economc Revew 65,

19 Dcke, M., Gerkng, S., Genetc rsk factors and offsettng behavor: the case of skn cancer. Journal of Rsk and Uncertanty 15, Hoyt, W., Lee, K., Educatonal vouchers, welfare effects, and votng. Journal of Publc Economcs 69, Kenkel, D., Consumer health nformaton and the demand for medcal care. Revew of Economcs and Statstcs 72, Krupnck, A., Cropper, M., The effect of nformaton on health rsk valuatons. Journal of Rsk and Uncertanty 5, Maddala, G., In: Lmted-dependent and Qualtatve Varables n Econometrcs. Cambrdge Unversty Press, Cambrdge. Sundng, D., Zvn, J., In: Comparson of Polces to Reduce Workplace Injures from Toxc Substances: The Case of Pestcde Posonng of Farmworkers. Department of Publc Health, Columba Unversty School of Medcne. Vscus, W., Economc foundatons of the current regulatory reform efforts. Journal of Economc Perspectves 10, Vscus, W., Magat, W., Forrest, A., Altrustc and prvate valuatons of rsk reducton. Journal of Polcy Analyss and Management 7,