Demand for Stigmatized Products: The Case of Fukushima Rice

• In Event: Student Panel: Insurance and poverty alleviation

Abstract

Product scandals such as recalls, safety failures, and risk outbreaks, etc., can inflict severe damage on the reputation of products and firms. Such events, present across a wide range of industries, can generate enduring firm and product stigmatization. Understanding the reason for stigma and how it changes demand for stigmatized products is both of economic interest and policy-relevant, helping firms and governments better price the costs and benefits of interventions. This study contributes to the literature on the economic consequences of product scandals, information shock, and demand estimation for stigmatized products. We explore the aftermath of the 2011 Fukushima Nuclear Power Plant Accident in Japan, with a specific focus on the demand for rice products from Fukushima prefecture. While having a focus on the Japanese context, this study has broad implications for understanding information shocks and product stigmatization in other industries and countries, for example, the U.S. 2007 toy industry recalls, the 2015 Volkswagen emission scandal, and the Chinese 2008 dairy industry scandal, etc.

The incident heightened Japanese consumers' sensitivity to the potential risks of radiation exposure through food consumption. In response to the crisis, the local government of Fukushima prefecture introduced “the all-package inspection of radioactive materials for rice” in 2012 to monitor the safety of their rice and to move forward for recovery from the disaster. The program costs approximately 50 million USD to inspect approximately 10 million 30-kilogram bags per year. Despite rigorous inspection results affirming the scientific safety of Fukushima rice, the product encountered stigmatization in the market, experiencing a dramatic and unrecovered decline in sales at retail stores.

We use product-level sales data spanning from 2010 to 2021 across 532 Japanese retail stores to study the impact of the Fukushima nuclear event on Fukushima rice. Our difference-in-differences estimates indicate a significant decline in the distribution rate and retailing sales of rice from Fukushima relative to rice from other prefectures after the nuclear accident. We also identify strong spillover effects to “blended rice” that do not reveal the origin prefecture. The event-study design shows that the decline in sales persisted throughout our entire sample period.

We estimate a structural model of demand for rice products and found Fukushima rice became price inelastic after the nuclear event, and consumer valuation of Fukushima rice decreased by 25% of its retail prices. Consumers exhibit a misperception of Fukushima rice, leading to a discontinuous demand curve in the market. An alternative model that allows for different price sensitivity attached to the stigmatized product outperforms the standard logit model in terms of matching observed data. The results highlight the importance of modeling the discontinuity to understand demand when information shocks happen on product quality/risk.

Author

• Sen Zeng, Cornell University
  Presenting Author