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Open AccessArticle

Local and Global Welfare When Regulating Organic Products: Should Local Regulation Target Production or Consumption?

by 1,2,* and 3
1
Business School, Henan Normal University, Xinxiang 453007, China
2
Department of Agricultural and Resource Economics, University of California, Berkeley, CA 94720, USA
3
UMR Economie Publique, Université Paris-Saclay, INRAE, AgroParisTech, 78850 Grignon, France
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(14), 5492; https://doi.org/10.3390/su12145492
Received: 3 May 2020 / Revised: 3 July 2020 / Accepted: 5 July 2020 / Published: 8 July 2020
Based on a welfare approach using a partial equilibrium model coming from microeconomics, this paper analyzes whether a local regulation aimed at reducing risks due to pesticides should be imposed at the production level or the consumption level. This paper characterizes the economic impact of these possible regulations from a theoretical point of view. Local and nonlocal producers compete only in the local market regarding selling conventional and organic products. Local producers incur variable costs related to reducing the risk of damage resulting from their new organic production methods. A local policymaker maximizing local welfare chooses either a regulation that is imposed on its local producers via production requirements or on all local and nonlocal producers via retail requirements that directly affect consumption. We show that local regulation is selected for relatively large values of damage. In this case, the organic regulation is influenced by whether the damage is incurred by residents and the environment close to the production site or by consumers. If the damage is incurred by residents and the environment close to the production site, only regulations targeting the local producers are selected, which improves the profits for nonlocal producers. Concerning damage incurred by consumers after their consumption, each type of regulation is selected depending on the cost of the safe technology, but the regulation targeting the consumption level harms nonlocal producers. View Full-Text
Keywords: organic regulation; local and nonlocal producers; reducing risk organic regulation; local and nonlocal producers; reducing risk
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Wu, H.; Marette, S. Local and Global Welfare When Regulating Organic Products: Should Local Regulation Target Production or Consumption? Sustainability 2020, 12, 5492.

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