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Abstract
This study develops a theoretical framework of heterogeneous consumer preferences to examine the
effect of voluntary and mandatory country of origin labeling (COOL) on consumer purchasing
decisions and welfare when consumers view COOL information as an attribute that differentiates
products vertically and horizontally. Analytical results of both the vertically and horizontally
differentiated product models show that the change from a no COOL to a mandatory COOL regime
decreases (increases) the welfare of consumers with weak (strong) preference for COOL. A change
from a no COOL to a voluntary COOL regime leads to an undisputed increase in consumer welfare
which results from an increase in the welfare of consumers with strong preference for COOL, while
the welfare of consumers with weak preference for COOL remains unchanged. A change from a
voluntary to a mandatory COOL regime leads to a consumer welfare loss in the vertically
differentiated product model and in the horizontally differentiated product model when product
relocation is prohibitively costly. In both the above models, a switch from voluntary to mandatory
COOL decreases the welfare of consumer with weak preference for COOL, while it keeps the
welfare of consumers with strong preference for COOL unchanged. A change from a voluntary to a
mandatory COOL regime in the horizontally differentiated product market when product relocation
is possible leads to a decrease in the welfare of consumer with both weak and strong preference for
COOL and to possible welfare gains for those consumers who place greater value in country of
origin information under mandatory than under voluntary COOL.