Using an ideal setting from a major food safety crisis, we estimate a full demand model
for the unsafe product and its substitutes and recover consumers' preference parameters.
Counterfactual exercises quantify the relevance of dierent mechanisms -changes in safety
perceptions, idiosyncratic tastes, nutritional characteristics, and prices-driving consumers'
response. We find that consumers' reaction is limited by their taste for the product and its
nutritional characteristics. Due to the costs associated ...
Using an ideal setting from a major food safety crisis, we estimate a full demand model
for the unsafe product and its substitutes and recover consumers' preference parameters.
Counterfactual exercises quantify the relevance of dierent mechanisms -changes in safety
perceptions, idiosyncratic tastes, nutritional characteristics, and prices-driving consumers'
response. We find that consumers' reaction is limited by their taste for the product and its
nutritional characteristics. Due to the costs associated with switching away from the aected
product, the decline in demand following a product-harm crisis tends to understate the true
weight of such events in consumers' utility. Indeed, we nd that a large fraction of consumers
are unresponsive to the crisis even when they significantly downgrade their product safety
perception. For an accurate assessment of the crisis, managerial strategies should therefore
account for how dierent demand drivers bind consumers' substitution patterns.
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