Course:ECON371/UBCO2009WT1/Group 7/Article5

On October 18, 2008, the federal government of Canada officially announced that they have decided to include bisphenol A (BPA) in the list of toxic substances, meaning that the widespread use of BPA in food packaging will be banned in Canada. At the same time, Canada has become the first one to phase out bisphenol A as a toxic chemical.

Environmental pollution caused by industrial agriculture (creating residues), bio-engineering techniques (such as genetically modified organisms), and production engineering techniques (such as irradiation or puffing) make up a number of pre-existing or potentially hazardous substances or factors that invade the human body. These substances may have accumulated or latent for a long period of time. The spread of BPA to future generations demonstrated that clinical symptoms or effects were difficult to detect.

The production of food has a special status in human life. The adverse effects caused by the social and economic impact are comprehensive. From the supply and demand point of view of market, the main players involved are producers (supply side), consumers (demand side), and government (market management side) in three areas. The study indicates that BPA will disrupt the hormonal system, causes reproductive defects as well as brain damage, cardiovascular disease, cancer, obesity and diabetes. Food quality and safety are important to prevent a decrease in the consumer's life and health. This is especially evident when such damage is not reversible or is more likely to lead to a potential increase in the total number of death and disease. In addition, consumers will suffer loss of income due to disease. Such losses could include medical expenses, lost income due to sick days, fees and other revenue opportunities. The improvement of food safety will affect the production and operation costs, thereby weakening the competitive price of products.

To safeguard citizen's food supply, nutrition and health is the responsibility of the government. The Government's market regulation has economic costs. The economic cost has two major parts, one being that the government budget is reflected in the expenditure of public administration; the other being that the policy of acting on the producer's cost of production due to increase in fixed cost. Management costs can be resolved through the budget reconciliation, but the cost of production is resolved by what consumers pay. Therefore, to achieve an effective supply of food quality and safety, we must increase the enthusiasm of suppliers to make supply-side efforts and improve the quality and safety. That makes the consumer willingness to pay for the recognition of the demand side.

Profits and Abatement Costs: Basic Economics

Firms deciding to make BPA-free bottles and various other products will depend on if their profit will increase. Rational firms will only adopt a new technology if it increases their profit. Firms will have to pay abatement costs to decrease BPA to zero emissions, since BPA is being considered as a pollutant to the human body. The efficient abatement the firm will choose is where Marginal Abatement Cost equals Marginal Damage. In this case, since BPA is considered as a highly toxic chemical, the Marginal Damage curve increases rapidly, and there is a high damage for the first unit of pollution. Unfortunately for the firm, to reduce BPA to zero, Marginal Damage has to also be zero, which increases the Abatement cost substantially.

Benefits and Willingness to Pay

Creating a substitute for BPA will decrease environmental impact, and increase human health. In this case, the benefits far outweigh the costs, since human life is in jeopardy. Firms that choose to adopt a new technology will have a substitute good for a BPA product. This substitute good will have an increase in demand, and the BPA products will have a decrease in demand. This is because consumers will be willing to pay more for a healthy, less risky product. However, this is most likely with higher income consumers, since they have the money to pay more to protect their health. In the case of Nalgene, a few years ago when BPA became an issue, their demand plummeted, since all of their bottles were made with BPA, which is how they could market their "indestructible bottle". Metal bottles and bioplastic bottles became much more popular and became something of a status item. Showing off an environmentally friendly and health friendly product was becoming more and more popular and encouraged. Now, Nalgene has made bottles which are BPA-free, and their sales have increased.

Decision Making and Efficient Allocation

A basic tenet of (simple, non-information) economics is that individuals make decisions that are good for themselves. The implementation of this policy suggests that the lack of information about BPA and perhaps the BPA content of packaging may cause individuals to hurt themselves. This assumption that the government is capable of ``outsmarting" individuals in their own decision making is one that may be a dangerous slippery slope implications over the long run.

Policy

To ensure the health and safety of the consumer, there needs to be a policy to phase out BPA and all of the products that contain it. Five criteria need to be looked at to decide on a policy: efficiency and cost effectiveness, fairness, incentives to innovate, enforceability and moral acceptability. It may not be efficient or cost effective at the start, since it is a drastic change in their production. It may not be fair* to the firms supplying the good, but the fairness to society makes up for it. There could be a subsidy for firms that choose to create BPA-free products which can act as an incentive to innovate. It may be hard at first to control and regulate BPA, but over time, it would get easier. Creating BPA-free products will definitely be accepted by society since it increases their safety and health.

A technology standard set by the government would be the best way to handle this situation since standards are very inflexible. Keep in mind that BPA should decrease to zero. A standard is also morally appealing since the polluters have to pay for their damages caused. To create a policy, a direct estimation of health damages can be calculated. Superior knowledge of a link between BPA and health needs to be acquired. An estimation of health damages can be calculated by assigning a value to a human life, which can have ethical issues attached to it.

Creating a standard of zero BPA will cause the output of plastic products to decrease since money is spent on pollution control and not on diverting resources to output. A technology standard does not give the polluter flexibility on how to make the product, so there is no guarantee that this will be cost effective. Also, if the polluter does not make the standard, a large sanction is given. So, it is more beneficial to the polluter to just meet the standard and move to making BPA-free products. Hopefully BPA will be banned in the near future to prevent damages to consumer's health and to increase safety.

[*] It is not clear that fairness is the main issue here. While many environmental policies are not equitable on a ``right to do business" level, they likely are in a social welfare critique. Efficiency of the social welfare function is the primary concern, and efficiently tackling the problem of pollution is likely to increase social welfare. It does seem, however, that a ban across the board of BPA products in food wrapping, while a great health benefit, may second-guess the ability for consumers to make their own decisions.

Prof's Comments

I think that you have a point with the information issue. If consumers are not well informed, then they are not able to make the best possible decision. In that case, there is a role for government to provide the information, or ban products when it is too costly for individuals to collect and process the information.

Your statement about the economics is wrong. Firms do not consider the marginal damage. Firms consider their costs. Firm emissions will be set where MAC = 0, unless the firm is facing charges in relation to the level of emissions it is discharging. Efficiency occurs where MAC = MD.