The Incidence of Fraud in the Agri-Food Marketing System

This dissertation consists of three essays that investigate the incidence of food fraud in the agri-food marketing system. The first essay develops an empirically relevant framework of heterogeneous consumers and producers to analyze the system-wide market and welfare effects of food fraud. Analytical results show that, while the price impacts of food fraud are product specific, its impact on the equilibrium quantities depends on the enforcement policy of the government and the relative magnitude of the demand and supply effects of food fraud. Regarding the welfare effects of food fraud, they are shown to be case-specific and asymmetric across different consumers and producers. The second essay analyzes the optimal policy response to food fraud while accounting for the asymmetric effects of food fraud on consumers and producers. While the government can, theoretically, deter food fraud through a significant increase in the certification costs and/or the monitoring-punishing system, the analysis shows that the optimal policy response depends on the efficiency of dishonest producers, the type of food fraud, the political preferences and objectives of the government, and the relative costs of different types of enforcement. Having identified that consumer reaction to food fraud is a key determinant of the market and policy outcomes, the final essay of my dissertation uses a laboratory valuation experiment to examine whether food fraud occurring in one country affects the valuation of products from that and other countries. The experiment was designed to compare consumers’ valuation of extra virgin olive oil (EVOO) from different countries before and after receiving information about food fraud in one of the countries. Results show that information about food fraud in one country negatively affects the valuation of EVOO not only from that country, but also from other countries, indicating that consumers’ response to fraudulent behavior in one country can spill over to other countries