Tainted Food, Low-Quality Products and Trade
This paper examines international trade in tainted food and other low-quality products. We
first find that for a large class of environments, free trade is the trading system that conveys
the highest incentives to produce non-tainted high-quality goods by foreign exporters.
However, free trade is neither a necessary nor a sufficient condition to exclude trade in
tainted products. This condition is less easily satisfied if the marginal cost of high-quality
production increases, or if errors of testing product quality matter. We also examine cases of
image-building investments and sabotage. In particular, sabotage by the domestic firm
reduces the foreign firm's incentives to produce high quality, and as a consequence tends to
increase import tainting.
Keywords: asymmetric information, experience good, product differentiation, sabotage, tainting, trade.
JEL Classification: D43, F12, F13, I12
Jean Marie VIAENE
Erasmus University Rotterdam, Tinbergen Institute and CESifo
Research Institute for Economics and Business Administration
Rokkodai-cho, Nada-ku, Kobe
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059