Economics of Precautionary Messages: Labeling Health Risks Open Access

Aslam, Maria Vyshnya (2014)

Permanent URL: https://etd.library.emory.edu/concern/etds/8w32r621f?locale=en
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Abstract

This dissertation provides a comprehensive analysis of the risk information campaigns familiarizing consumers with the hazardous product attributes. Recently the public is overwhelmed with warnings about health, safety, and environmental hazards, some of which have disappointing effects on consumer safety. This calls for identifying the limitations in conveying safety messages to the vulnerable population.

As a policy example, this dissertation focuses on initiatives informing the public of the most dangerous allergens, responsible for 90 percent of allergic reactions. The first chapter examines different ways of communicating health risks and compares voluntary and mandatory posting of the allergy warnings. Using difference-in-differences and difference-in-differences with endogenous stratification, I demonstrate that the voluntary display of harmful ingredients is associated with a sizable increase in the demand for medical services, while mandatory disclosure results in a steady decline in the number of vulnerable patients seeking medical help.

Another empirical paper (chapter 3) focuses on consumer reaction to health risk messages. I contrast consumers with the higher and lower allergen susceptibility using a difference-in-differences setup and a two-step procedure. Surprisingly, the policy improves health outcomes of patients with lower allergen susceptibility. However, when controlling for the exogenous variation in patients' prior expectations about product safety, I find no difference in reaction to warnings regardless of consumer risk sensitivity. Comparison of the "mass" regulatory initiatives and personalized warnings shows no link between the mass campaigns and health improvements unless consumers have access to individualized warnings.

My theoretical paper (chapter 2) examines the interactive effects of regulation and litigation in effecting the equilibrium consumer and firm care in avoiding unsafe ingredients. The main novelty is in recognizing that consumer warning-reading effort is endogenous, and it is determined by various factors, including liability system and firm care. I found that from consumer perspective, equilibrium firm and consumer care are strategic substitutes, while for a firm they are complements. This calls for improving the warning visibility and consumer risk perception, which increase both the equilibrium consumer and firm care. Stronger liability, however, shifts the burden of care from consumers to firms with an overall ambiguous effect on expected harm.

Table of Contents

1.VOLUNTARY VS MANDATORY DISCLOSURE OF RISK INFORMATION:
EVIDENCE FROM FOOD ALLERGEN LABELING REGULATION . . . . . . . . . . . .1


1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Disclosure of Allergen Content in Foods . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.4.1 Food Allergies and Their Synthetic Controls . . . . . . . . . . . . . . . . . . .11
1.4.2 Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
1.5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.5.1 Main Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.5.2 Error in the Dependent Variable and Spillover Effects:
Impact of the Food Allergen Labeling on Non-food Allergies . . . . . . . . . . . 26
1.5.3 Latent Demand for Medical Services . . . . . . . . . . . . . . . . . . . . . . . .28
1.6 Discussion and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Non-printed Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Appendix 1.A: Definition of the Variables . . . . . . . . . . . . . . . . . . . . . . . . . 44

Appendix 1.B: ICD-9-CM Diagnoses Coding . . . . . . . . . . . . . . . . . . . . . . ..48
Appendix 1.C: Selected Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..56


2 PRODUCT LIABILITY AND REGULATION
WHEN CONSUMER LABEL-READING EFFORT COUNTS . . . . . . . . . . . . . . . .56


2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
2.2 A Motivating Example: Regulation of Allergen Labels . . . . . . . . . . . . . 59
2.3 Theory Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
2.4 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..65
2.5 Consumer Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
2.6 Seller's Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
2.7 Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
2.7.1 Changes in the Strength of the Liability System . . . . . . . . . . . . . . . . 79
2.7.2 Changes in Visibility of Warning Labels . . . . . . . . . . . . . . . . . . . . . . . 81
2.7.3 Changes in Consumer Perceptions . . . . . . . . . . . . . . . . . . . . . . . . . 83
2.7.4 Changes in Disclosure Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
2.7.5 Comparing Policy Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
2.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Non-printed Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
Appendix 2.A: Proofs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94


3 CONSUMER ATTENTION TO HEALTH WARNINGS:
DOES THE REFERENCE RISK MATTER? . . . . . . . . . . . . . . . . . . . . . . . . . . 102


3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
3.2.1 Food Allergen Labeling Regulation and Its Impact on Consumers . . .106
3.2.2 Consumers with Different Sensitivity to Allergens: Definition and
Methodological Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
3.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
3.4 Food Allergies and their Synthetic Controls . . . . . . . . . . . . . . . . . . . . 113
3.5 Estimation and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..117
3.5.1 Patients with Different Susceptibility to Allergens: NHAMCS Sample . 117
3.5.2 Patients with Different Susceptibility to Allergens: SEDD Sample . . .. 121
3.5.3 Patients with Different Prior Information about Their Allergies . . . . .. 126
3.5.4 Policy Implications: Mass vs Personalized Risk Information

Campaigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
3.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..137
Non-printed Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Appendix 3.A: Definition of the Variables . . . . . . . . . . . . . . . . . . . . . . . . . .139
Appendix 3.B: ICD-9-CM Diagnoses Coding . . . . . . . . . . . . . . . . . . . . . . . .142
Appendix 3.C: Common Cross - Reactions Between the Major Food Allergens
and Their Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

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