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Consumer preferences for country-of-origin, geographical indication, and protected designation of origin labels

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Consumer preferences for country-of-origin, geographical indication, and protected designation of origin labels
    Consumer   preferences   for   country ‐ of  ‐ srcin,   geographical   indication,   and   protected   designation   of    srcin   labels   Luisa   Menapace,   Gregory   Colson,   Carola   Grebitus,   Maria   Facendola   Working   Paper   No.   09021   November   2009   I OWA S  TATE U NIVERSITY   Department   of    Economics   Ames,   Iowa,   50011 ‐ 1070   Iowa   State   University   does   not   discriminate   on   the   basis   of    race,   color,   age,   religion,   national   srcin,   sexual   orientation,   gender   identity,   sex,   marital   status,   disability,   or   status   as   a   U.S.   veteran.   Inquiries   can   be   directed   to   the   Director   of    Equal   Opportunity   and   Diversity,   3680   Beardshear   Hall,   (515)   294 ‐ 7612.    1 “Consumer preferences for country-of-srcin, geographicalindication, and protected designation of srcin labels” Luisa Menapace Department of EconomicsIowa State UniversityAmes, IA 50010Tel: (515)  Gregory Colson Assistant Professor314 Connor HallThe University of GeorgiaAthens, GA 30602Tel: (706) 583-0616Email:  Carola Grebitus Abteilung für Marktforschung der Agrar- und ErnährungswirtschaftInstitut für Lebensmittel- und Ressourcenökonomik Universität BonnNussallee 2153115 Bonn, GermanyTel: +49 (0228) 73-3582Email:  Maria Facendola ISMEADirezione Mercati e Risk ManagementAnalisi Economiche e FinanziarieSettore Rating The authors would like to thank GianCarlo Moschini for his helpful comments. LuisaMenapace was supported in part by the U.S. Department of Agriculture through acooperative research project with Iowa State University.  2 Consumer preferences for country-of-srcin, geographical indication, and protecteddesignation of srcin labelsAbstract Motivated by the recognition that geography is often correlated with, or an importantdeterminant of, the overall quality of agricultural products, consumer groups, industryrepresentatives, and domestic and trade representatives have increasingly considered thepotential role of geographical srcin labels as consumer information and marketing tools.We investigate whether consumers recognize and value the informational content of avariety of nested geographical srcin labels. In particular, this study disentangles andassesses three nested types of srcin labels: country of srcin (COOL), geographicalindications (GI), and PDO/PGI. We find that, within the context of a high quality value-added commodity such as extra virgin olive oil, consumers' willingness to pay variesacross different countries of srcin, and that within a country consumers have a greaterwillingness to pay for GI-labeled than non-GI labeled products. We also find evidencethat consumers value PDOs more than PGIs, but the result is not as strong as that foundfor GI versus non-GI. Overall, our findings support the recent surge in interest by bothdeveloped and developing nations in reaching an agreement for stricter and morewidespread protection of GIs within ongoing WTO discussions and harnessing them asmarketing tools for expanding shares in export markets. Key words: Consumer preferences, geographical indications, country of srcin labels,PDO, PGI, olive oil  3INTRODUCTIONThe primary overarching economic motivation for product labels is to facilitate theresolution of market failures associated with the supply of high-quality goods underasymmetric information (e.g., Akerlof 1970). In the crowded, heterogeneous foodproduct space, information asymmetries are particularly problematic given the abundanceand importance of credence and experience attributes. As a result, food labeling isviewed as a critical mechanism to help ensure consumers can correctly match withproducts, enable producers to adapt production to meet consumer demands andexpectations, and promote social or political economy objectives (e.g., health outcomes,growth in desirable sectors, increased exports).One particular category of labels that has recently received extensive attentionamong regulators and trade representatives are "geographical srcin" labels (i.e., labelsthat denote, with some degree of specificity, the location of srcination of the end-product, inputs, or production). Informing consumers of the srcin of food products vialabeling is motivated by the recognition that geography is often correlated with aproduct's overall quality or, in the stronger case, geography may even be a determinant of a product's ultimate realized quality (i.e., the concept of  terroir  ). Recently, interest ingeographic srcin labeling for foods has been invigorated as a result of (1) an increaseddemand by consumers for production and safety related information following a string of food scares, 1 (2) a surge in global culinary awareness and demand for foreign cuisine, and(3) a movement of many nations away from traditional agricultural price supportstowards promotion of value-added and high quality products.  4Two types of srcin labels, country of srcin labels (COOL) and geographicalindications (GI), have received extensive attention in the economic and marketingliterature and are currently the subject of domestic and international policy debates. 2 Anabundant economic and marketing literature has analyzed COOL as signals of a broadlydefined concept of product quality (i.e., the aggregation of many intrinsic and extrinsicproduct attributes linked to srcin). 3 These variations in quality across countries aredetermined in part by differences in the natural environmental and climatic conditions aswell as differences in national quality standards, production and processing technologies,quality audit systems, etc. This feature has even led to the reference of COOL as"country brands" (e.g., Unterschultz 1998; Gilmore 2002; Clemens and Babcock 2004).Although geographical indications are similar to COOL, these two forms of srcinlabeling differ in several regards which significantly impact their informational contentand potential value to both consumers and producers. Compared to COOL, GIs typicallydenote a much smaller geographical area of srcin like a town or region (e.g.,Champagne, France or Pelee Island, Canada). Hence, GIs are capable of communicatingcharacteristics specific to a specialized area that are not necessarily reflected by thecountry as a whole. As well, in contrast to COOL, for a geographic name to berecognized and receive intellectual property (IP) protection as a GI, producers mustdemonstrate the existence of a link between the characteristics of the geographicenvironment of production and the quality of the product that seeks the GI status.Furthermore, in order for eligible producers in the delineated region to use the GI, theymust adhere (subject to third-party inspection) to established production specifications,
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