Consumer Reactions to E. Coli and Antibiotic Residue Recalls: Utility Maximization vs. Regret Minimization

Food safety remains a major issue to many consumers. Previous studies examining the economic impact of food safety recalls have focused on Class I recalls. Antibiotic residue in meat products, a Class II recall, has increased in consumer importance yet little is known about how much research and development expenditure should be allocated to reduce antibiotic residue pre- and post-harvest. This study compares demand elasticities and the decrease in willingness to pay in response to either an E. coli (Class I) or antibiotic residue (Class II) recall. We compare and contrast two competing behavioral frameworks, Random Utility and Regret Minimizing. Modeling behavior using the random regret framework is found to be more powerful for assessing consumer responses. In addition, we explore if different groups of consumers exist that either maximize utility or minimize regret. Consumer devaluations of E. coli (Class I) are 40-65% larger than antibiotic residue (Class II). Approximately 60% of consumers are identified as regret minimizers and 40% were identified as utility maximizers. While industry response and government policy recommendations differed conditional on modeling framework, the regret minimizing framework required smaller price discounts than regret minimizing to maintain the same level of market share.