Thursday, March 09, 2006

Musing on the free market

According to an article in yesterday's New York Times, contamination by salmonella of the chicken produced by the nation's meat processors is on the rise. If not killed by careful cooking or if it contaminates some other food during the cooking process, it can cause mild to severe gastrointestinal distress, and is dangerous to those in poor health.

Contamination declined during the 90s, but after a federal agency tried to shut down a producer for persistent problems and was taken to court and lost, contamination is on the rise - some 16% of all chicken sold has salmonella.

My question is - Why isn't the market taking care of this problem? Presumably being salmonella-free involves extra costs and does not give the producer sufficient competitive advantage. Only government regulation can force all producers to shoulder these costs and only government enforcement can make sure the producers do not cheat.

Perhaps the problem is the fact of salmonella contamination is not easy for a consumer to discern, and the market works onl with the available information. I can imagine a chicken producer labelling the product to be "Tested to be free of salmonella", but perhaps the cost of doing the testing versus the perceived benefit is not there. Is it waiting for better technology or for more demanding consumers?


Potentilla said...

The market isn't taking care of it because of asymmetric information - see Akerlof on lemons.

Arun said...

I'll look that up. "Akerlof and the Lemons" sounds like the title of a children's book :).

When I last went to the grocer's, I did see organic-type eggs, advertised as being from uncaged hens, fed no antibiotics and vegetarian diet, and eggs regularly tested for salmonella. So I bought some. Presumably the whole package of these hen/egg attributes is saleable.