“Does Contain” vs. “Does Not Contain”: Does it Matter which GMO Label is Used?

An analytical framework where heterogeneous consumers are imperfectly informed about product content is used to investigate the welfare effects of a public labeling system. Although a mandatory label that reads “Does Contain” or one that reads “Does Not Contain” genetically modified organisms (GMOs) provides information for both the labeled and the unlabeled goods, there is no reason why these labels should cause the same welfare effects. This paper shows that the two labels imply different distortions due to the associated cost of labeling. It is shown that the label “Does Contain” should be used if the ratio of consumers with a strong reluctance for consuming GMO goods to indifferent consumers is high, while the label “Does Not Contain” should be used if this ratio is low. Given the findings, the authors argue that current labeling differences in various countries need not be the result of protectionist trade regulations.