Friday, May 11, 2012

Who Should Inspect Our Food for Safety?

The New York Times has an interesting article on the poultry inspection changes. Specifically, the issue at hand is whether the government should inspect poultry or should private markets inspect poultry? For the last few decades the Agricultural Department has employed poultry inspectors and now is proposing that poultry inspection should be done by poultry processing employees. The poultry industry is in favor of this proposed change, but others are not.

This revolves around a bigger issues that we discuss in Prin. of Microeconomics: should the government or should markets produce goods/services. We conclude that if goods/services are non-excludable and non-rivalrous in consumption, that the government is better to produce that type of good/service. An example I use in class is snow removal from public roads.

So what about food inspection? In terms of the final consumer, food inspection seems to be a public good: once the food has been inspected the inspector cannot exclude customers of the food inspection service; and for the final consumer food inspection also seems to be non-rivalrous in consumption - one customers consumption of food inspection does not diminish another customer from benefiting from food inspection. Sounds like a public good to me. Yet, can a market provide this service instead of the government?

Their are clear costs (employment expenses) and benefits (reduced legal liabilities from lawsuits) to the poultry plant owners of poultry inspection, and there are benefits (wages/salaries) and costs (work) of poultry inspection employees, it seems to me that a market could be used to allocate this type of service. If a newly created firm providing private poultry inspector services were to hire food (in this case poultry) inspectors (most likely the same individuals currently inspecting poultry) and sell those services to poultry processing plants, then the government could eliminate the expense of poultry inspector employees and ultimately shift that cost back to the poultry processing plants. (This is not what the Agricultural Department is proposing.)

The government would still be setting the requirements for what is safe poultry (regulations) and also be available to enforce the regulations via the legal system, but not have to also provide the services themselves and allow the private market to do so. The firms could via contracts list the requirements for poultry inspectors in terms of access and number of employees on the poultry plant line (or this could be regulated by the Agricultural Department if it currently is not).

To me the advantage is that the surplus that is created by this system would be captured by the newly created firms as opposed to being dissipated by the government.

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