DP11262 | Consumers' Costly Responses to Product Safety Threats

Publication Date

05/05/2016

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Abstract

The main goal of this study is to determine how the different components of preferences condition consumers' reactions to safety threats in markets with no close substitutes for the unsafe product. Using data from an ideal setting related to the mad cow disease epidemic, we estimate a full demand model for meat and estimate consumers' preference parameters over nutrients, safety, and taste. We find that substituting away from the threatened product (beef and veal) is costly for consumers in terms of forgone nutrients, especially iron, and taste. Counterfactuals quantify the observed decrease in demand for beef and veal following the safety threat event, which is driven by consumers updating their perceptions of this meat category's safety. We also find that the consumer demand response is heterogeneous and limited by their tastes.