1. Economics of agro-food safety and international market for agro-food products and legislation
Antonio Stasi

2. INDEX Utility Utility…lets talk in math terms
Utility…basics of comparative statics
Utility and policy
How to measure utility

3. Utility What is? If it is adimensional, How it is used?
Adimensional Measure of Consumers’ Satisfaction
If it is adimensional, How it is used?
Used to make consumers among consumers (only if measured always in the same way)
What we need to know:
How can I practically use it for policy/managerial purposes

4. Utility
The RATIONALE behind utility refers to the HEDONISTIC principle
Consumers behave rationally and selfishly (egoistically), maximizing their own satisfaction
Which are the determinants of utility?
Which are the cause of utility?
What could potentially change the level of utility a consumer achieves?

5. max(U) = max(Quality,Quantity) subject to: Y = sum(pq)
Utility
We can say that individuals choose to buy/eat/consume a product when utility is at its maximum level given the budget constraint
Utility is max when the perceived quality is max and the quantity is also max….depending on the budget…of course
max(U) = max(Quality,Quantity)
subject to: Y = sum(pq)

6. max(U) = max(Quality,Quantity) subject to: Y = sum(pq)
Utility
max(U) = max(Quality,Quantity)
subject to: Y = sum(pq)
Utility
Budget Constraint
Max U for that person
Quality

7. Utility…lets talk in math terms
If Utility is assumed to be a linear function of quality and quantity…
U = a1Qt + a2Qual
Because of Lagrange Theory, budget constraint can be included into the equation, giving rise to…
U = a1Qt + a2Qual - bP

8. Utility…basics of comparative statics
How much utility would increase if budget increases by 1 euro (unit)?
By means of the partial derivative with respect to price, we have
∂U/ ∂P = -b
How much utility would increase if quality increases by 1 unit?
∂U/ ∂Q = a

9. Utility…basics of comparative statics
TRADE-OFF
How much should I increase quality if I increase the price and I want to keep people buying my product?
If an individual already buys, Utility is max
Utility was already maximized initially, when for example Qual = 1 and Price =1
U = a1 – b 1

10. Utility…basics of comparative statics
What if I want to increase price to 2? How much should I increase quality to keep consumer’s utility at the max level?
Umax = a1 – b 1
now
a(Q?) – b 2
therefore
a1 – b 1 = a(Q?) – b 2
hence
Q? = (a+b)/a
So I would increase quality from 1 to Q?

11. Utility…basics of comparative statics
What if I want to produce higher quality (from 1 to 2) products? How much should I ask consumers to pay?
Umax = a1 – b 1
now
a(2) – b P?
therefore
a1 – b 1 = a2 – b P
hence
P? = (a+b)/b
So, if quality goes from 1 to 2, I would increase price from 1 to P?

12. Utility…basics of comparative statics
This concept keeps the name of WILLINGNESS TO PAY for an increase of quality (WTP)
“a” measures consumers’ perception of quality
“b” measures consumers’ sensitivity to price changes

13. Utility and Policy Quality can be intended in various ways
Organoleptic quality
Level of information provided to consumers (labeling)
Level/Presence of some ingredients (sulfites in wine, genetically modified ingredients…, level of fiber, level of alcohol…)
Combination of product attributes
The evaluation of utility could be used for understanding the best policy

14. How to measure Utility
E.g. take more than one product with fixed characteristics
Ask people:
Ranking/Ordering
Say which is the first choice for you, the second, the least
Scoring
Assign a score for each product
Choice Probability
Which one among those is your effective choice?

15. How to Measure Utility
The following measure are reliable approximation for Utility
Ranking/Ordering
Scoring
Choice Probability
U = Prob = Rank = Score

16. How to measure Utility Remember the equation? U = aQual - bP
For the moment we have U
How about Qual and P?
Those are observable characteristics we can see on the shelves
How about a and b?

17. Boosting Adult System Education In Agriculture – AGRI BASE
Financed by:
Partners: