Avoidance Costs Assvciated with Imperflct Infoymation : The Case of Kepone

Abstract

In a recent article, Shulstad and Stoevener (1978) offered an analysis of a component of environmental degradation costs, the costs of avoiding contamination. Their analysis of mercury-laden Oregon pheasant provided an extension of previous environmental literature by recognizing that individuals change their behavior to avoid pollution and that there are costs associated with the avoidance. This note contains a further delineation of those avoidance costs by considering avoidance costs that arise from imperfect information. Shulstad and Stoevener treat pheasant hunters as having perfect information related to the effects of consumption of contaminated products, and therefore, the observed consumer avoidance is rational and welfare losses are unavoidable. In many instances, however, the consumer must make decisions with imperfect information and some of the avoidance costs may be incurred because of this. With better information, the welfare losses would not occur and, therefore, can be considered needless. The absence of consistently high water quality in the U.S. has created consumer uncertainty about the quality of purchased fish and shellfish. Allegations of illness (e.g., hepatitis) occurring after seafood consumption have raised consumer skepticism about the safety of these products, especially for those consumed in an uncooked form.' Highly publicized contamination of water areas results in precipitous declines in seafood demand. The news of closures, combined with the imperfect information about which seafood purchases are affected, may cause demand to fall for seafood products not harvested from the affected water area.2 The consumer behavior arising from imperfect information raises a policy issue not associated with usual avoidance costs: Should the government provide detailed information to consumers about the likelihood of consuming contaminated products in different locations or market forms? Such a program could be

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