Sébastien Rouillon edited sectionThe_benchmark.tex  over 8 years ago

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\section{The benchmark model}  Suppose that an industrial lobby, denoted by $I$, has developed a new product. If the new product is marketed, lobby $I$ will obtain a benefit $b$ from selling it. However, the new product may also have environmental and/or health detrimental effects. If the new product is marketed, it is assumed that an environmental lobby, denoted by $E$, will bear a damage $\delta$.\footnote{It is assumed here that that the two lobbies truly and fully represent their members' interests. The problem of free-riding is considered in section 6.} By assumption, only lobby $I$ observes $\delta$ before the product is marketed.\footnote{The situation where neither lobby observes $\delta$ is not considered, because the lobbying activities then always foster a less efficient decision-making by the government. The situation where both lobbies $I$ and $E$ observe $\delta$ is considered in section 6.} However, it is common knowledge that $\delta$ is uniformly distributed on $\left[0,1\right]$. \footnote{By assumption, the root of all asymmetric information in the model comes from the fact that only the industrial lobby, as the developer of the new product, is in a position to evaluate the associated detrimental externalities. Clearly, the latter directly determine the damage $\delta$, but are much less likely to influence the benefit $b$.} $b$. This justifies why we postulate that the benefit is public information, whereas the damage is private information.}  %\footnote{The reasons why we postulate that the benefit is public information, whereas the damage is private information, are as follows. On the one hand, the industrial lobby is in a privileged position to conduct laboratory experiments to test the product. Actually, dealing with the genetically modified organisms used for food or feed, Spiroux de Vend\"{o}moi et al. (2010) explain that the tests are not independently conducted and the raw data are not disclosed by the companies, which thus enjoy finer information about the environmental and/or health effects of their products. On the other hand, we argue that this \emph{private} information, which is obviously critical to determining the damage, is almost irrelevant to determining the benefit. By definition, the externalities accompanying the product marketing affect \emph{third parties} and, thus, do not influence the benefit from selling the product. The health effects affect the \emph{consumers} themselves and, thus, can depreciate the benefit, provided that the consumers \emph{appropriately} internalize them. However, the current regulations in many countries prevent this to happen in the case of genetically modified organisms used for food or feed, due to lack of labeling, making the consumers unable to discern which foods contain genetically modified organisms, and due to lack of publicly disclosed testing.}