A Game Theoretic Approach to Organic Foods: An Analysis of Asymmetric Information and Policy

In recent years, the increasing number of health conscious, informed, and more demanding consumers has led to an increase in demand for healthy, safe, and environmentally friendly food products. The food industry has responded to this increased demand by offering a wider range of quality-differentiated products (Fraz~o and Allshouse 1996), including organic foods, products with other nutritional and food safety characteristics, products with claims that they were produced with sound environmental and animal welfare practices, and kosher foods. Food processors and retailers have been quick to use quality claims in marketing these products, The major characteristics that define food product quality attributes include food safety, nutritional, value, packaging and processing (Hooker and Caswell 1996). These food product quality classes are offered with different degrees of asymmetric information. Asymmetric information problems occur because food producers know whether they have used the appropriate methods to achieve the desired quality attributes, but consumers only know with certainty what the producers’ quality claims are or what the label says. The federal government