Impacts of Pathogen Introduction Risk on Importer Behavior and Gains from Trade in the Livestock Industry

Trade eliminates geographic barriers, allowing for novel exchange of goods and services, but also creates pathways for the unintentional spread of infectious pathogens such as foot and mouth disease. In the absence of trade regulation, a producer's choice of import origin depends on relative prices and costs associated with trading partners. This paper develops a framework for exploring importer behavior in a non-regulated economy, allowing for price and risk heterogeneity among potential import sources. In the model, importers determine the risk of introducing foot and mouth disease to home soil and choose import volumes using risk and market data. When importers consider the possibility of unreported or undetected outbreaks, they choose to import from multiple sources to minimize risk and simultaneously create gains from trade over the regulated outcome. Our results have implications for the development of import and inspection policies that could be specifically designed to target highest risk imports of livestock.