The Mechanism of Food Fraud and Governance: Theory and Evidence

Abstract

Abstract This study constructs and expands the food fraud governance framework, including the risk formation mechanism and fraud regulation system. The risk formation mechanism issues that quantity-quality substitutability is a fundamental condition for food fraud and separates the effects of resource input constraints from information asymmetry. Furthermore, this study considers the roles of penalties and rewards for the quality risk regulation institution. The results show that penalty-based quality regulation design is doomed to be inefficient because it can only mitigate the effects of information asymmetry. Simultaneously, a reward can further alleviate the impact of resource input constraints. Higher food quality is not always better, especially when the resource input is constrained. Further, we conclude that the food-safety risk governance system designed by policymakers should consider the quantity and quality of food simultaneously. JEL Classification Q18; L15