Higher Minimum Quality Standards and Redistributive Effects on Consumer Welfare

Abstract

This paper estimates an individual-level demand model for eggs differentiated by animal welfare. Typically, after minimum quality standards for eggs are raised, the price of higher-quality eggs falls. As a result, consumer welfare is redistributed from households that do not value animal welfare to households that are willing to pay a premium for animal welfare. In our analysis of German household data, we find that, on average, households with higher income are willing to pay more for eggs that provide higher animal welfare. This provides evidence that higher minimum quality standards have a regressive impact. In counterfactual scenarios, we estimate the cost reduction that would be needed to offset the regressive effect and find that as retailers’ pricing power increases, the cost reduction must be higher. Finally, we consider hypothetical future scenarios that continue to increase the minimum quality standard until only the highest-quality eggs remain on the market.