8611: Promoting demand for organic food under preference and income heterogeneity

Eerola, Essi and Huhtala, Anni (2005) Promoting demand for organic food under preference and income heterogeneity. Paper presented at The future of rural Europe in the global agri-food system : the XIth international congress of European Association of Agricultural Economists EAAE, Copenhagen, Denmark, August 24-27, 2005, page pp. 1-19. The European Association of Agricultural Economists EAAE.

Summary

We examine the design of policies for promoting the consumption of green products under preference and income heterogeneity using organic products as an example. Two instruments are considered: a price subsidy for the organic products and a tax on the conventional products. Under income disparity, consumers with high income always prefer a socially optimal subsidy to a socially optimal tax, while low-income consumers prefer a tax on conventional products. When environmental policy is determined by the median voter, the policies implemented tend to be stricter than socially optimal policies if income differences are large.

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