The economic information concerning consumer willingness to pay becomes particularly
insightful when allowing for heterogeneity in consumer preferences. The findings presented
here show that it is essential to account for preference heterogeneity, particularly
when modeling consumer demand for food with credence characteristics. The results indicate
that the majority of respondents are concerned about credence characteristics related
to the environment, animal welfare, and antibiotics. These consumers view the certified
products as imperfect substitutes for the conventional product and have a significant
willingness to pay for schemes that guarantee these attributes.
The attribute-conscious group, which represents 16% of the sample, has the highest
willingness to pay. However, there is a great variation of the preferences for credence
certification and so the standard errors are relatively large. The second group, referred to
as the price-conscious group, has the lowest willingness to pay. The associated class probability
for this group is 41%. The class probability for the third group, referred to as the
concerned shoppers, is 43% and their preferences are situated in between the attribute and
the price-conscious groups. The concerned shoppers have a positive significant willingness
to pay for the certification programs. However, the concerned shoppers are not willing to
pay as high price premium as the first group and opt for the conventional product if the
price is too high. Therefore, from a policy perspective, it is crucial to investigate how the
degree of consumer heterogeneity affects the economic viability of a voluntary certification
scheme because the conventional product may be viewed as a perfect substitute by a
large population share.
Comparing the cost estimates presented by Roller (2004) and Foster (2004) with
the willingness to pay estimates seems to indicate that there is some market potential
among the concerned shoppers and the attribute-conscious groups for the certification
programs. Therefore, if a labeling program targets the group of consumers who perceive
that credence characteristics are important, it is also important to analyze how other
consumer segments view the certified products, and moreover consider the welfare impact
of voluntary labeling policies on consumers and suppliers.