Submitted Article Do Consumer Responses to Media Food Safety Information Last?

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1 Applied Economic Perspectives and Policy (2011) volume 33, number 3, pp doi: /aepp/ppr019 Submitted Article Do Consumer Responses to Media Food Safety Information Last? Robin Dillaway, Kent D. Messer*, John C. Bernard, and Harry M. Kaiser Robin Dillaway is a graduate of the Department of Food and Resource Economics at the University of Delaware. Kent D. Messer is an associate professor and John C. Bernard is a professor in the Department of Food and Resource Economics, and the Department of Economics, respectively, at the University of Delaware. Harry M. Kaiser is the Gellert Family Professor of Applied Economics and Management at Cornell University. *Correspondence may be sent to: messer@udel.edu. Submitted 18 June 2010; accepted 17 March Abstract Using experimental methods with adult subjects from the mid- Atlantic region of the United States, this research examines both the short- and longer-term impacts of media information on consumer purchasing behavior. Subjects in the treatment group were given food safety information about poultry from a popular consumer magazine. Willingness to pay (WTP) estimates were then elicited for two types of chicken breasts: (1) a leading-brand that was identified in the information treatment as having a high incidence of Campylobacter and Salmonella bacteria; and (2) a lesser known brand, which was reported as being relatively free of harmful bacteria. Results indicated that both negative and positive food safety information significantly impacted consumers WTP for safer chicken compared to the reportedly less-safe leading-brand chicken. These changes in behavior persisted throughout the seven-week study period. Key words: Consumer behavior, food safety, experimental economics, media information. JEL Codes: Q13, D83, C91. Introduction The Centers for Disease Control and Prevention (CDC) estimates that there are approximately 76 million illnesses, 325,000 hospitalizations, and 5,000 deaths annually caused by food-borne diseases in the United States (Mead et al. 1999). The U.S. Department of Agriculture s Economic Research Service estimates that food-borne illnesses from the top five pathogens affecting humans cost society $6.9 billion annually (Crutchfield and Roberts, 2000). Moreover, a recent study estimates that food-borne illness has a societal cost of $357 billion annually (Roberts, 2007). Clearly, # The Author(s) Published by Oxford University Press, on behalf of Agricultural and Applied Economics Association. All rights reserved. For permissions, please journals.permissions@oup.com. 363

2 Applied Economic Perspectives and Policy food-borne illnesses are a health risk as well as an economic burden on society, yet the effect of food-borne illnesses on consumer behavior is not well understood. The issue of whether and how quickly consumers return to their previous behavior after receiving media food safety information is important to consider when studying the effect of information on consumers purchasing behaviors. However, research on how quickly the impact of food safety information decays is scarce. Accordingly, the focus of this research is to provide a better understanding of consumer reactions to media food safety information over time. Media reports about food safety concerns are relatively common. Consider for example, the 2006 Escherichia coli outbreak in spinach, which resulted in 204 illnesses, 104 hospitalizations, and 3 deaths (Calvin 2007). In September 2006, the Food and Drug Administration (FDA) advised consumers not to eat bagged spinach and expanded the warning the following day to fresh spinach. This resulted in a five-day period during which no fresh spinach was sold in the United States, while California spinach remained off the market for ten days (Calvin 2007). In the longer term, sales of bagged spinach were depressed for months afterward. Compared to the same period from the previous year, retail sales of bagged spinach were down 27% five months after the outbreak (Calvin 2007). Knowing more about the effects of food safety information on consumer behavior is of particular importance to government agencies. Agencies such as the CDC and FDA issue numerous warnings about specific food products. For instance, the CDC reports that in 2006, there were 1,247 food-borne outbreaks (CDC 2008). Given the large number of reported outbreaks, their impact on consumers can be important. Media reports are an important source of information about food safety issues for consumers. The degree of coverage a food safety incident receives is likely to influence consumer decisions. However, little is known about how consumers react to situations where there is an initial burst of media information about the safety of a food product and then relatively little information is provided as the media focuses its attention on other topics, which is common practice, as food safety tends to receive sporadic coverage in most media outlets. This study differs from most of the previous literature in that it seeks to understand both short- and longer-term consumer responses to food safety concerns by eliciting willingness to pay (WTP) for poultry products using experimental economics methods. This study expands upon previous experiments on food safety with its multiple sessions, which allows for an examination of the dynamic processes that exist in the real world. Most previous experiments, (for example, Hayes et al. 1995; Lusk and Schroeder 2002; and Thomsen and McKenzie 2001,) which consist of a single, isolated session, are unable to show consumers changing attitudes and WTP over time. To our knowledge, the seven-week study period used here is the longest used by an experimental study of this kind. Other studies (for example Saghaian 2007; Beach et al. 2008) of consumer response to food safety scares have traditionally relied upon aggregate market data and do not track specific individuals to see how their behavior changes over time, as the experimental framework here allows. Our study involved 110 adult participants who were randomly assigned to either the control group or the treatment group. Each subject participated in three sessions over seven weeks. Participants in the control 364

3 Do Consumer Responses to Media Food Safety Information Last? treatment were given no food safety information. Participants in the food safety treatment were given information from a Consumer Reports magazine article, which stated that during the testing of leading brands of chicken (identified specifically by Consumer Reports as Perdue, Tyson, Foster Farms, and Pilgrim s Pride) 1 high rates of contamination of harmful bacteria were found. Ranger brand chicken, however, was relatively clean of these bacteria (Consumer Reports 2007). Analysis of the WTP data indicated that participants in the treatment group were willing to pay more for the Ranger chicken (a relatively safer product). Results from this study indicated that consumers were strongly affected by food safety information both immediately and over time. Relevant Literature The impact of food safety information on consumers WTP has been well established in both experimental and empirical studies. In general, the experimental studies have used controls available in a laboratory to measure consumers WTP at a single moment in time, while the empirical studies have employed econometric techniques to examine the change in consumer behavior over time. That food safety information affects consumer purchasing decisions is well established in the literature with some studies focusing on the effect of general information alone, others focusing on positive information, others on negative information, and some using a combination of both. The experiments of Hayes et al. (1995) demonstrated that the availability of information can change consumers purchasing habits in response to perceived risk, as consumers in this study were willing to pay a premium for safer food. The authors also found that experimental subjects tended to underestimate the probability of a foodborne illness. Several empirical studies have also shown food demand to be affected by food safety concerns. For instance, Piggitt and Marsh (2004) found a relatively small downward demand shift in response to food safety concerns, while Marsh, Schroeder, and Mintert (2004) found a significant downward demand shift in response to Food Safety Inspection Service recalls. Literature on food product recalls has also shown negative market impacts (for example, Lusk and Schroeder 2002; Thomsen and McKenzie 2001). Studies that have focused on either negative or positive information (for example Lusk et al. 2001) have shown that negative information decreases a consumers WTP, while positive information increases consumers WTP. For example, the experimental results of Lusk et al. (2001) showed a premium involving positive information regarding the tenderness of steak. That is, consumers were willing to pay a premium when given a taste test that included information concerning the tenderness of a steak compared to a taste test with no information. Results of the study indicated that consumers value quality (as indicated by tenderness in this study) in the beef market. In another experimental study concerning consumer WTP, Stenger (2000) showed that information resulted in a significant increase in WTP for vegetables grown without the use of sewage 1 All brand names are described as they were reported in Consumer Reports. The authors make no claims to the accuracy of this information. 365

4 Applied Economic Perspectives and Policy sludge as a fertilizer over their current spending levels for fruits and vegetables, despite consumers perception that the health risk from such a fertilizer treatment was small. Saghaian s (2007) observational study concerning BSE food safety shocks also shows that negative information affects prices downward over a ten-week period. In this study, retail prices lag from a week to ten days behind producer price drops and are less severe. When consumers receive information about food safety, this information is often mixed with both positive and negative messages. Several studies have found that negative information has a stronger effect than positive information. For example, Fox, Hayes, and Shogren s (2002) study of irradiated pork tested favorable versus unfavorable information to determine which had a stronger effect on consumers WTP at the time of purchase. Using three treatments (negative information, positive information, and a balanced treatment involving both positive and negative information), the study demonstrated that providing negative information had a much stronger influence, even when the negative information comes from a nonscientific source. In a study using real-life case reports concerning genetically modified foods, Hu, Zhong, and Ding (2006) found that positive information did not significantly affect participants WTP, but negative information significantly decreased WTP. Several studies have also considered consumers response to food safety information over time. Brown, Cranfield, and Henson (2005) found that WTP drops markedly as participants become more tolerant of risk; their results from a one-session experiment indicated that the WTP of consumers who initially overvalued the risk of food-borne illness tended to increase their WTP as their tolerance for risk increased. The study did not contain a longer-term time component to determine if participants returned to previous levels of tolerance for risk over time. Hammitt and Haninger s (2007) stated-interest survey results indicate that participants WTP is insensitive to duration between one and seven days. Shogren, List and Hayes (2000) conducted an experimental study involving consecutive auctions eliciting participants WTP for food products over a two week period. The authors found that participants WTP changed over time. Given the strong effect that information has regarding immediate consumers food purchasing behavior, food safety concerns can be expected to change behavior over time. Studies that have used observational methodologies have indicated that consumer behavior is affected by the passage of time. Beach et al. (2008) demonstrated in their study of the influence of newspaper stories about avian influenza on Italian poultry sales that negative media information had a persistent effect lasting up to five weeks. The reasons for these variations in the duration of impacts on consumer behavior are difficult to unravel. Saghaian s (2007) observational study of the effect of BSE on U.S. markets found downward price effects during the ten-week study period, forecasted up to 15 weeks. Thomsen, Shiptsova, and Hamm (2006) found that sales of a recalled brand remained depressed for approximately eight to twelve weeks and did not fully recover for four to five months. These results were specific to a particular brand that was affected by a recall and did not pertain to non-branded food commodity markets. 366

5 Do Consumer Responses to Media Food Safety Information Last? Experimental Design In empirical studies, a key concern is whether all consumers have the same access to information regarding the safety of food products. Additionally, little is known about how consumer behavior changes as information concerning the incident becomes less available over time. To help control for these influences, this study used an experimental economics lab setting. To date, essentially all experimental studies have looked at consumer behavior response to food safety information as captured in a single session, and have not conducted the more difficult task of repeatedly bringing adult subjects to a lab setting to evaluate change in WTP over time. Our experimental design used within-subject comparisons of WTP for two different types of chicken breasts and between-subject comparisons of WTP for two different treatment groups one with food safety information and one without this information. This design was structured to test the following five primary research questions in order to understand how positive and negative information affected participants in both the shortand longer-term: (1) Did consumers have different preferences for the two chicken types when food safety information was not provided? (2) Did consumers have different preferences for the two chicken types when food safety information was provided? (3) Did brand-related food safety information decrease consumers WTP for a relatively less safe product? (4) Did brand-related food safety information increase consumers WTP for a relatively safer product? (5) Did consumers WTP for any type of chicken in either treatment group change over time after no additional food safety information was provided? In this study, 110 adults participated in the experiment. 2 Participants were recruited from a large northeast university s lifelong learning campus (for students aged 50 and over), as well as from the university s staff, and public attendees of an annual event open to the general public. The latter experiments were conducted in the Experimental Economics Laboratory for Policy and Decision Research at the University of Delaware. The study was widely advertised as an experiment in decision-making that would require participation in three sessions. These respective settings were chosen because they provided an easily accessible laboratory setting for participants that were available in the same building, at the same time and day of the week for several weeks. All experimental sessions were conducted between April and July The subject pool was not selected to represent the entire United States or even a regional area. 3 As shown in table 1, to examine short- and longer-term impacts on WTP, the 2 Initially, 119 subjects participated in the first session, nine of whom dropped out of the study. Therefore, 92.4% of the subjects who attended the first session attended all three sessions. 3 The sample population used in this study had many participants over the age of 50. The administrators made every effort to ensure that all participants were fully capable of participating through several rounds of instructions. It was not within the scope of this study to determine if older participants were less capable of operating computers, read more carefully, were more risk averse, were more likely to be exposed to food safety concerns, or were more rigid in their beliefs. These behaviors may be possible with an older population. 367

6 Applied Economic Perspectives and Policy Table 1 Experiment structure Session 1 (1 hour) Part A 1. Participants read instructions 2. Verbal instructions 3. Practice round; WTP bid for pen Part B 1. Participants read instructions 2. Verbal instructions 3. Presentation of food safety information if session is Treatment group 4. Presentation of products to participants 5. WTP bids for leading-brand chicken, Ranger brand chicken, fettuccine pasta, and one dozen eggs Session 2 (7 days later, 15 minutes) Part B only, no additional information 1. Participants read instructions 2. Verbal instructions 3. WTP bids for leading-brand chicken, Ranger brand chicken, fettuccine pasta, and one dozen eggs Session 3 (28 days or 49 days later, 15 minutes) Part B only, no additional information 1. Participants read instructions 2. Verbal instructions 3. WTP bids for leading-brand chicken, Ranger brand chicken, fettuccine pasta, and one dozen eggs experiment consisted of three sessions. In the first session, which lasted one hour, participants WTP was elicited for each of four products. This was followed by a second 15-minute session held at the same time and place one week after the first session. No further food safety information was given to the participants at the second session. Participants repeated part B of the experiment, which involved bidding on the four products. The third session was held 28 days later for half of the participants and 49 days later for the other half. 4 This division was necessary to accommodate 4 A limiting factor for the length of the study was the semester length at the lifelong learning facility, which ended eight weeks after the beginning of this study. Thus, extending the study beyond seven weeks would have likely meant a much lower percentage of participants completing all three sessions. 368

7 Do Consumer Responses to Media Food Safety Information Last? scheduling conflicts, such as a national holiday. Both treatments were equally represented in the different lengths of time for the third sessions. In both treatments, the third session lasted fifteen minutes, and Part B was repeated with no further food safety information presented. While 119 subjects initially participated in the first session, nine of these subjects subsequently dropped out of the study. Therefore, 92.4% of the subjects who attended the first session attended all three sessions. Participants earned $60 in cash and/or products for the experiment. The payments for all participants were $11 in cash and/or products in session 1, $10 in cash and/or products in session 2, and the remaining payment in cash and/or products in session 3. A modification of the sealed-bid English auction mechanism was used to elicit WTP estimates due to its ease of explanation and its demandrevealing and incentive-compatible properties (Davis and Holt 1993; Bernard 2006). Using this auction mechanism, subjects incentives were to bid their highest WTP and therefore reveal their true demand preferences. Compared to second-price auctions, traditional English auctions are better able to measure participants WTP, but have the disadvantage of having bids visible to everyone in the experiment session, which can lead to potential group-effects on individual behavior. Lusk and Shogren s (2007) review of different auction methods also point out the merits of the English auction, as well as the random n th price auction. The sealed-bid English auction retains the benefit of the increasing bid clock while keeping bids hidden (Bernard, 2006). In this study, we used a modification of the traditional English Auction. We refer to this auction as a sealed, random n th bid English Auction. All of the bids were submitted confidentially so that participants were unaware of what other participants in their experimental session were bidding. This research used $10 as the maximum bid since this was the amount of the initial balance given to all participants and was significantly higher than the market price for 1.5 pounds of chicken breasts. In these experiments, the highest bid submitted was $9.90 for Ranger chicken. Participants were informed using both written and oral instructions that the optimal strategy was to bid their actual highest WTP for each product. Therefore, they needed to determine their personal highest WTP for the product being auctioned and submit that amount as their bid. A computer program that employed Excel spreadsheets and programmed using Visual Basic for Applications was used to confidentially record participants WTP (Messer, Kaiser, and Schulze, 2008). Participants were instructed to stop the program when the displayed price reached her/his maximum WTP. The program initially showed a $0.00 price. Subjects wanting to submit a bid of $0 were provided a Withdraw button at this initial screen. Participants wanting to submit bids greater than zero were instructed to start by clicking the Start button. When they did so, the program began increasing the price in one-cent increments at a uniform time interval until the participant clicked a button marked Withdraw. If the Withdraw button was never clicked, the program would record the maximum bid allowed ($1 for the training round and $10 for the four products). The maximum price was always equal to the participants initial balance of funds. To help ensure that participants did not get a sense of what other participants were bidding, it was necessary to allow the clock to run up to the maximum bid of $

8 Applied Economic Perspectives and Policy The price for the item was determined by the highest rejected bid. At the end of each auction, bids were arranged by the administrator s computer program from highest to lowest and the number of purchasers was randomly determined. The subject with the highest bid was the first purchaser, and so on. The number of purchasers was determined randomly by having a volunteer roll a six-sided die with the number of purchasers therefore ranging from one to six for sessions with seven or more participants. 5 For example, if the number of participants in a session was ten, and the result of the die roll was five, the five highest bidders would purchase the product and pay a price equal to the bid of the sixth highest bidder. Prior to conducting the experiments, participants were randomly assigned to either a treatment group (n ¼ 56) that received media-based food safety information, or a control group (n ¼ 54) that received no media information. The average number of participants in a session was nine, with a range from three to sixteen. Verbal and oral instructions were provided to improve the understanding of experiment procedures (see the Review Appendix). Questions were encouraged during all stages of the experiment. Subjects were seated at individual computer terminals equipped with privacy screens so that all decisions would be made confidentially. The first session was divided into two parts (table 1). Following Messer et al. (2011), Part A consisted of a practice round where participants bid on a pen. This practice round helped ensure that participants understood how the bidding process worked and how to stop the computer program at the desired WTP. For the pen, the initial balance provided to each subject was $1. Participants were instructed to bid zero if they valued the product at $0 or less, and were instructed to bid $1 if they valued the product at $1 or greater. If their value for the pen was between $0 and $1, they were instructed to stop the computer program at the price that represented their highest WTP. During the training round, questions were answered to ensure that participants understood the program and procedure. In part B, the initial balance was $10 for each product. Participants were permitted to bid between $0 and $10. In part B, four products were auctioned: 1) Frozen boneless skinless chicken breasts from a leading-brand such as Foster Farms, Perdue, Pilgrim s Pride, or Tyson (approximately pounds). 2) Frozen boneless skinless chicken breasts from Ranger (approximately pounds).6 5 For sessions with less than seven participants, the maximum number of purchasers was k 1, where k was the number of participants. In some cases, a four-sided die was used. The number of purchases was determined randomly using an n th -price auction because of the repeated nature of these experiments. For instance, if a standard second-price auction was used, then after the first session, most subjects would have a good sense of whether their bid for the selected product in the subsequent sessions would be close to the highest bid in their group. The use of an n th -price auction helped ensure that essentially none of the bidders would be off-margin. 6 Ranger brand chicken is only available in the Pacific Northwest. To avoid deceiving subjects, over 70 pounds (nearly 50 packages) of Ranger brand frozen boneless skinless chicken breast were shipped overnight express from Bellingham, Washington, packaged in dry ice and in freezer containers, at a cost of over a thousand dollars. 370

9 Do Consumer Responses to Media Food Safety Information Last? 3) Eggs (one dozen, size large). 4) Fettuccine pasta (one pound). All original packaging information was removed from the products prior to the experiment to control for any reaction individuals might have to the packaging. Both types of chicken were displayed in clear, one-gallon sealed freezer bags. Participants were informed that if they purchased the chicken, we would package the chicken in ice, if desired, to ensure that the chicken would remain frozen until they returned home. 7 Before the bidding began, an administrator walked around the room and displayed each of the products. Participants were asked not to touch the products, since the products would be distributed after the experiment to the purchasers, but they were permitted to visually inspect each of them as closely as they wished. To prevent potential order effects, the order in which the products were displayed was determined using a Latin squares design. 8 Participants bid on all four products, but only one product was actually purchased similar to the procedures designed by Bernard, Zhang, and Gifford (2006). The purchased product was randomly predetermined using a four-sided die and was written on an index card. The card was sealed inside an envelope, which was opened by a volunteer after all of the auctions were completed. Prior studies have shown that, in a multiple-round auction such as this one, randomly determining the product that is purchased helps to elicit WTP among participants (see Lusk, Feldkamp, and Schroeder (2004); Hayes et al. (1995); and Messer et al. (2010)). This procedure compensates for the potential that a participant purchased a product in one session and therefore decreased her or his WTP in subsequent sessions. It was possible for the same product to be binding in more than one session. The binding product in this experiment was randomly determined for each session in an effort to reduce the potential effects across sessions caused by a subject receiving a product in one session and having to bid again for the same product in subsequent sessions. These procedures were used since this experiment involved multiple sessions with the same products. In such cases, there is a potential that participants who purchase a product in one session will bid lower than their true WTP in subsequent sessions since they already have the product. However, this effect was minimized since the actual quantity of chicken sold during the experiments was small. Therefore, it was important to make the binding auctions random in order to minimize this type of effect on participant WTP. After bids for all four products were collected, the predetermined product was distributed to purchasers and used to calculate cash earnings. 7 All of the chicken was frozen so that consumers would have less concern about potential food safety issues related to the administrator s handling of the chicken, and to minimize concerns that the chicken would need to be eaten immediately. This latter reason was important in the case that participants were not returning to their homes immediately after the research, as well as to ensure that the potential useful life of this product was as long as possible, so that consumers WTP would not be significantly affected by the amount of chicken that they might have just recently purchased at a grocery store prior to the session. 8 A Latin Squares design is used here as a method of varying the order of products. For instance, if in the first session, products A, B, and C are introduced in that order, in the next session, they will be introduced in the order B, C, A. In the following session they will be in the order C, A, B, and so on. 371

10 Applied Economic Perspectives and Policy At the end of the experiment a short survey was then distributed in each session to collect demographic data, as well as information about subjects beliefs about the safety of food products, and whether subjects received additional food safety information between sessions of the experiment. The information provided to the treatment group about the two chicken products is included in appendix 1. Results The participants WTP bids for chicken are displayed in the four panels of figure 1, which shows the demand for each chicken type in each session and in each treatment group. The figures plot WTP on the y-axis against the percentage of participants willing to pay at a given price on the x-axis. Figure 1 WTP for approximately pounds of chicken breasts, by type and treatment 372

11 Do Consumer Responses to Media Food Safety Information Last? The legends of each figure provide the mean and standard deviation related to each demand curve. To answer the research questions outlined in the experimental design section, the participants responses were analyzed in several different ways. Normality tests were performed on WTP data for the leading-brand chicken and the Ranger brand of chicken using STATA s sktest, which measures skewness and kurtosis to test for normality. The results of the skewness and kurtosis tests indicated that the data were not normally distributed. Thus, the WTP bids were analyzed with nonparametric Wilcoxon rank-sum tests to analyze differences between the two treatment groups (table 2). Wilcoxon signed-rank tests were used to test for statistical significance within experiment sessions and within chicken types. Additionally, two-limit Tobit regression models were also used to explain participants WTP for chicken. A two-limit Tobit was required, since participants bids were constrained at $0 and $10 in the experiment. The model included data from all three sessions, for both chicken types from both the control and treatment groups. This model thus included six observations from each of the 103 non-vegetarian subjects bidding three times each for two brands of chicken. A random-effects model was used since each participant had multiple observations in the panel data set. Marginal-effect coefficients were calculated to translate the regression coefficients into WTP. The model included an information variable measuring the impact of the food safety information in the study on participants WTP. The variable info was also interacted with all other independent variables to find the effects of food safety information on subgroups. Table 3 provides descriptive statistics on the variables in the following model: wtp_chicken ¼ b 0 + b 1 (info) + b 2 (ranger) + b 3 (ranger*info) + b 4 (days) + b 5 (days 2 ) + b 6 (days*info) + b 7 (days 2 *info) + b 8 (ranger*days) + b 9 (ranger*days 2 ) + b 10 (ranger*info*days) + b 11 (ranger*info*days 2 ) + b 12 (age) + b 13 (age*info) + b 14 (female) + b 15 (female*info) + b 16 (children) + b 17 (children*info) + b 18 (primary_shopper) + b 19 (primary_shopper*info) + b 20 (education) + b 21 (education*info) + b 22 (nonwhite)+ b 23 (nonwhite*info)+ b 24 (p_chickensafe) + b 25 (p_chickensafe*info) + b 26 (income)+ b 27 (income*info)+ b 28 (eat_chicken_often)+ b 29 (eat_chicken_often*info) + 1. The variables p_chickensafe and p_chickensafe*info were constructed using survey responses from participants indicating whether they considered chicken to be a safe product. A Hausman test for endogeneity indicated that the p_chickensafe variable was endogenous. The residual term was a significant predictor of the dependent variable ( p ¼ 0.023). Therefore, instrumental variables were constructed for p_chickensafe and p_chickensafe*info using auxiliary regressions of these variables on all exogenous variables in model. Tests of Research Questions The first research question was, Did consumers have different preferences for the two chicken types when food safety information was not provided? A visual inspection of panels A and C in figure 1 suggests that the demand curves for leading-brand chicken were slightly higher than the demand curves for the Ranger brand. As can be seen in table 2, panel A, on average in the three sessions, participants were willing to pay between 373

12 Table 2 Sets of tests of differences in WTP with Wilcoxon significance tests. H 0 : WTP for Ranger brand - WTP for Leading-brand 5 0 Panel Control Prob> z Panel Treatment Prob> z A Session ¼ B ¼ Session ¼ ¼ Session ¼ ¼ All Sessions ¼ NA ¼ 0.55 NA Applied Economic Perspectives and Policy H 0 : WTP for Treatment group WTP for Control group ¼ 0 Leading-brand Prob. z Ranger brand Prob. z 374 C Session ¼ D ¼ Session ¼ ¼ Session ¼ ¼ All Sessions ¼ NA ¼ 0.18 NA H 0 : WTP for Session 1 WTP for Session 2 ¼ 0 Leading-brand Prob. z Ranger brand Prob. z E Control ¼ F ¼ Treatment ¼ ¼ H 0 : WTP for Session 2 WTP for Session 3 ¼ 0 Leading-brand Prob. z Ranger brand Prob. z G Control ¼ H ¼ Treatment ¼ ¼ H 0 : WTP for Session 1 WTP for Session 3 ¼ 0 Leading-brand Prob. z Ranger brand Prob. z I Control ¼ J ¼ Treatment ¼ ¼

13 Do Consumer Responses to Media Food Safety Information Last? Table 3 Variables in the Tobit model. Variable Mean Standard deviation Minimum Maximum wtp_chicken - WTP for both leading-brand and Ranger chicken. info - 1 for the treatment group and 0 otherwise. ranger - 1 for WTP for Ranger and 0 otherwise. days - Number of days since the first session. days 2 - Number of days since the first session squared. age-19if, 20; 24.5 if between 20 and 29; 34.5 if between 30 and 39,...; 84.5 if between 80 and 89. female- 1 for female and 0 otherwise. children- 1 if participant has children under 18 living at home and 0 otherwise. primary_shopper - 1 if participant is primary shopper in household and 0 otherwise. education- 0 if less than college degree, 1 if college degree, and 2 if more than a college degree. nonwhite - 1 if nonwhite racial designation and 0 otherwise. p_chickensafe - Instrumental variable constructed from participant responses whether they consider chicken safe. income- Categorical household annual income variable ranging from 0 ($0 - $39,999) to 10 (over $200,000) by $40,000 increments. eat_chicken_often - 0 if participant eats chicken never; 1 if rarely; 2 if once a month; 3 if several times a month; 4 if once a week; and 5 if several times a week $0.15 and $0.29 less for a pound and a half of the chicken breasts. However, these differences were not statistically significant in any session. For the pooled data used in the two-limit Tobit analysis, the coefficient on the variable ranger was again negative (-0.273) and not statistically significant (p ¼ 0.216) (table 4). Recall that participants were given information which stated that Ranger brand was safer. The second question, Did consumers have different 375

14 Applied Economic Perspectives and Policy Table 4 Two-limit Tobit results, WTP for chicken. Marginal effect Standard error P> z constant info ranger ranger*info days days days*info days 2 *info ranger*days ranger*days ranger*info*days ranger*info*days age age*info female female*info children children*info primary_shopper primary_shopper*info education education*info nonwhite nonwhite*info p_chickensafe p_chickensafe*info income income*info eat_chicken_often eat_chicken_often*info Sum of all info coefficients F test statistic Wald chi 2 ¼ Prob. chi 2 ¼ Log likelihood ¼ Left-censored observations 79 Uncensored observations 455 Right-censored observations 0 Note: Since some of the survey questions were left blank by subjects, some observations were not included in the final model, reducing the total number of observations to 534. preferences for the two chicken types when food safety information was provided, contrasted WTP in the information treatment for the two chicken types. Inspection of figure 1 shows a marked increase in WTP between leading-brand chicken ( panel D) and Ranger chicken ( panel B). These differences in average WTP ranged from $0.36 to $0.94, which were statistically significant in session 1 ( p ¼ 0.000), session 2 ( p ¼ 0.036), and session 3(p ¼ 0.012) (table 2, panel B). This result was further supported by the Tobit model results where the increase in WTP for Ranger from the food safety information was $1.24 when all other factors were held constant 376

15 Do Consumer Responses to Media Food Safety Information Last? (p ¼ 0.000). All of this evidence suggested that the null hypothesis can be rejected, as participants in the treatment group were willing to pay more for Ranger chicken than for leading-brand chicken. This response to the positive information for Ranger chicken 9 corroborated results found in Lusk et al. (2001) and Stenger (2000). The third research question, Did brand-related food safety information decrease consumers WTP for a relatively less safe product, related to whether information affects WTP for chicken. Since all variables were interacted with the information variable in the Tobit analysis, the derivative of info was calculated by adding the coefficient for info and all variables interacted with info. A model-specification F-test indicated that the info variable had a coefficient of and was significant at the p, 0.01 significance level (table 4). The effect of information was most pronounced in the lowering of WTP for leading-brand chicken. For instance, as shown in panel C of table 2, participants who were given food safety information from Consumer Reports were willing to pay, on average, $0.65 less in the first session for leading-brand chicken than participants who were not given this information. This difference was statistically significant (p ¼ ) (table 2, panel C). The $0.56 and $0.58 average differences in the second ( p ¼ ) and third ( p ¼ ) sessions, respectively, were not significant at the p.05 significance level, but were significant at the 0.10 level. Taken together, this suggested that the answer to the third research question was that consumers do reduce their WTP for the less safe product after receiving negative food safety news. The results for leading-brand chicken were consistent with the literature (see Hayes et al and Messer et al. 2011) in that negative information decreased WTP. Research question 4, Did brand-related food safety information increase consumers WTP for a relatively safer product, reveals the result that food safety information for Ranger chicken had a significant positive effect. Table 4 indicates that the Tobit model results for the variable ranger*info are highly significant with a coefficient of All else held constant, average WTP for Ranger chicken was $1.23 higher. Table 2 (panel B) also indicated that participants who received food safety information were willing to pay a premium for Ranger chicken when compared to leadingbrand chicken in all three sessions. In contrast, the information treatment did not increase participants WTP for Ranger chicken by session, as none of the differences between any of the three sessions were statistically significant (table 2, panel D). Thus, consumers will pay more for a safer product after learning of positive food safety information. Furthermore, consumers WTP for this product will not decrease like it does for the less safe brand of chicken. However, this result is not differentiable by session, which suggests that time is not a factor in consumer willingness to pay a premium for a safer product. The fifth research question, Did consumers WTP for any type of chicken in either treatment group change over time after no additional food safety information was provided, tested the longer-term effect on WTP. As shown in figure 1, average WTP for both types of chicken in both treatment groups was highest in the first session. However, tests of these differences 9 While the information about Ranger brand chicken was not universally positive, as some level of bacteria contamination was detected, the Consumer Reports article clearly presented Ranger as the relatively safer alternative for chicken consumers. 377

16 Applied Economic Perspectives and Policy (table 2, panels E-J), show that the only differences that were statistically significant were the $0.76 and $0.83 decrease in WTP for Ranger chicken in the information treatment (p ¼ and p ¼ , respectively). The two-limit Tobit model indicates that none of the eight variables that included days were statistically significant. The variable, days, measured the number of days that had elapsed since the first session. This passage of time could potentially have affected participants in several ways: participants may have forgotten about the information they learned over time; participants desire for chicken may also have changed over time based on whether they had recently purchased chicken; participants may also have changed their mind or had second thoughts since the previous sessions. The insignificance of the days variables demonstrates that there was no significant change in participants WTP over time for leading-brand or Ranger brand chicken in either treatment group. 10 A more differentiated analysis is available from the Wilcoxon significance tests shown in table 2. The results of these tests indicate that WTP for Ranger was significantly different between sessions 1 and 2 in the treatment group ( panel F). Session 1 WTP for Ranger is also significantly different from session 3 for the treatment group ( panel J). However, WTP for Ranger is not significantly different between sessions 2 and 3 in the treatment group (panel H). None of the differences in WTP for Ranger between any of the sessions is significantly different in the control group. WTP for leading-brand is not significantly different from session to session for either the treatment or the control group (panels E, G, and I). These results indicate that the premium for Ranger is short-lived and disappears by session 2, while the negative effect on WTP for leading-brand remains over all sessions. In addition to treatment dummy variables, several demographic variables were also included in the Tobit regression model. As is common in experimental studies, gender, age, income, and education variables were included as explanatory variables of WTP (Bernard, Zhang, and Gifford 2006; Fox, Hayes, and Shogren 2002; Hobbs et al. 2005; Hu, Zhong, and Ding 2006; Lusk et al. 2001; Lusk, Feldkamp, and Schroeder 2004). Since some research has found the presence of children in participants households to influence WTP, the number of children in each household was included as an explanatory variable (Bernard, Zhang, and Gifford 2006; Hu, Zhong, and Ding 2006; Kanter, Messer, and Kaiser 2009; Lusk et al. 2001; Messer et al. 2011). Following previous studies, race (Bernard, Zhang, and Gifford 2006), whether a subject considers themselves the primary shopper in the household (Kanter, Messer, and Kaiser 2009), and 10 Survey results indicate that 24 subjects (21.8% of the total sample) reported receiving outside information between experimental sessions that affected their bidding during the course of the experiment. Of these 24 subjects, 9 were in the control group and 15 were in the treatment group. While subjects were not given any information about Ranger brand chicken other than the safety information provided in the Consumer Reports article, simple internet searches about this brand would reveal to consumers that Ranger is also free range and the chickens are raised without the use of hormones or antibiotics. To test whether subjects researched Ranger brand chicken and subsequently bid higher in subsequent sessions, any positive responses were compared with bids that were at least 10% higher for Ranger brand chicken. Of the subjects who responded that they were affected by outside information, only 4.6% of subjects bid at least 10% higher for Ranger in session two than in session one, 6.4% of subjects bid at least 10% higher in session three than in session two, and 5.5% bid at least 10% higher in session three than in session one. Therefore, the potential impact of information gained outside of the experiment is likely minimal. 378

17 Do Consumer Responses to Media Food Safety Information Last? the frequency which subjects reported that they eat chicken (Messer et al. 2011) were also included as explanatory variables. Many results from the above mentioned variables are worth noting. In the Tobit model, children*info, p_chickensafe, and eat_chicken_often*info were highly significant independent variables. The variables children, primary_shopper, education*info, p_chickensafe*info, and income were also significant. Participants in the treatment group with children (children*info) under 18 living at home were willing to pay $2.55 less on average for chicken. Those in the control group (children) were willing to pay $0.93 more, on average. Those participants in the treatment group who considered chicken to be a safe product were willing to pay $0.96 more on average. Interestingly, those participants in the treatment group who ate chicken often (eat_chicken_often*info) were willing to pay $1.16 more on average. This result was consistent with the results of Payne et al. (2009), who found frequent consumers of beef were less affected by negative food safety information. Participants who consume chicken more frequently are also more likely to have been exposed to similar food safety warnings concerning chicken in the past. This may also be a factor in the lack of significance of this variable for the control group and such a strongly significant result for thetreatmentgroup.thesignificanceofthevariableprimary_shopper indicated that participants in the control group who considered themselves to be the primary shopper in the household were willing to pay $1.05 more on average than those who did not consider themselves to be the primary shopper. The significance of the impact of product safety information and education (education*info) indicated that more highly educated participants in the treatment group were willing to pay, on average, $0.43 less ($0.65 less + $0.22 from the coefficient for the education variable). The significance of the income variable (income) indicated that for every dollar of household income that participants in the control group reported, participants were willing to pay $0.007 more for chicken. The remaining demographic variables were statistically insignificant. Conclusion This experimental study demonstrated that a combination of negative and positive information regarding food safety has a long-lasting impact on demand. One hundred ten adults participated in this research to test the effects of negative and positive information over time on consumer purchasing behavior (as measured by WTP). Participants were asked to repeat the experiment twice after the initial session to measure changes in their WTP over time, extending out to seven weeks. During each session, WTP data were collected on both leading-brand and Ranger brand chicken. Demographic data were also obtained from the participants. The food safety information used in the study came from a 2007 Consumer Reports magazine article stating that leading-brand chicken, specifically identified as Perdue, Tyson, Foster Farms, and Pilgrim s Pride, frequently contained harmful bacteria. The article also stated that another brand, Ranger, was relatively free of harmful bacteria. Results from this study indicated that consumers are willing to change their purchasing behaviors to avoid unsafe products. Both positive and negative information had an effect on consumers WTP. Consumers were willing to pay less for the leading-brand chicken after they received negative food safety information compared to a control group that did not 379