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Abstract
The paper analyses the problem of information
in the cattle market, particularly as it relates to the status of
animal health, and discusses ways to limit it with the view to
improving social surplus. Against this background, it aims to
achieve three major objectives. Firstly, it describes the ways of
improving the level of information through such schemes as
Conventional Warranties and Third Party Certification and
the different choices made by sellers and buyers in the
presence of these schemes. Secondly, it studies the various
ways by which these schemes make an impact on equilibria in
different markets (i.e., the pooling market and the premium
market), and, consequently, on the social surplus. Thirdly, it
identifies the necessary conditions for a third party/public
decision-maker to increase social surplus and reduce the
negative externality caused by disease by managing and
supporting Third Party Certification. The paper shows that
product certification and product warranty cannot coexist
because product warranty is suboptimal. It also shows that
certification, and a possible supporting of certification or
animal testing does not necessarily improve the safety of the
trade.