On mandatory labeling, with special reference to genetically modified foods.

Author:Sunstein, Cass R.

As a result of movements for labeling food with genetically modified organisms (GMOs), Congress enacted a mandatory labeling requirement in 2016. These movements, and the legislation, raise recurring questions about mandatory product labels: whether there is a market failure, neoclassical or behavioral, that justifies them, and whether the benefits of such labels justify the costs. The first goal of this Article is to identify and to evaluate the four competing approaches that agencies now use to assess the costs and benefits of mandatory labeling in general. The second goal is to apply those approaches to the context of genetically modified (GM) food.

Assessment of the benefits of mandatory labels presents especially serious challenges. Agencies have (1) claimed that quantification is essentially impossible; (2) engaged in breakeven analysis; (3) projected various endpoints, such as health benefits or purely economic savings; and (4) relied on private willingness-to-pay for the relevant information. All of these approaches run into serious normative and empirical challenges. In principle, (4) is best, but in practice, (2) is sometimes both the most that can be expected and the least that can be demanded.

Many people favor labeling GM food on the ground that it poses serious risks to human health and the environment, but with certain qualifications, the prevailing scientific judgment is that it does no such thing. In the face of that judgment, some people respond that even in the absence of evidence of harm, people have "a right to know" about the contents of what they are eating. A simple response to this argument is that the benefits of such labels might well be lower than the costs. Consumers would obtain no health benefits from labels. To the extent that they would be willing to pay for them, the reason (for many though not all) is likely to be erroneous beliefs about health risks, and erroneous beliefs are not a sufficient justification for mandatory labels. Moreover, GMO labels might well lead people to think that the relevant foods are harmful and thus affirmatively mislead them.

Some people contend that GMOs pose risks to the environment (including biodiversity), to intelligible moral commitments, or to nonquantifiable values. Other people think that the key issue involves the need to take precautions in the face of scientific uncertainty: because there is a non-zero risk that GM food will cause irreversible and catastrophic harm, it is appropriate to be precautionary, through labels or through more severe restrictions. The force of this response depends on the science: If there is a small or uncertain risk of serious harm, precautions may indeed be justified. If the risk is essentially zero, as many scientists have concluded, then precautions are difficult to defend. The discussion, though focused on GM foods, has implications for disclosure policies in general, which often raise difficult questions about hard-to-quantify benefits, the proper use of cost--benefit balancing in the face of uncertainty, and the appropriate role of precautionary thinking.

INTRODUCTION 1045 I. PRODUCT LABELING IN GENERAL 1050 A. Market Failure? 1050 1. Consumer Demand and Incomplete Information 1051 2. Producer Behavior 1052 3. Markets That Do Not Unravel 1054 4. "Does Not Contain" Labels VS. "CONTAINS" Labels 1055 B. Costs and Benefits 1056 1. Costs 1058 a. A Small Cognitive Tax 1059 b. A Hedonic Tax on Those Who Do Not Change Their Behavior 1059 c. A Hedonic Tax on Those Who Do Change Their Behavior 1060 d. A Consumer Welfare Loss 1060 2. Benefits 1061 3. Third Parties--and Morality 1066 4. Risk--Risk Tradeoffs: A Brisk Note 1068 II. GENETICALLY MODIFIED FOODS 1068 A. A Little Science 1069 1. Definition and Pervasiveness 1069 2. Benefits 1070 3. Health 1072 4. Ecology and the Environment 1074 5. Risk--Risk Tradeoffs 1075 B. What People Want, and Why 1076 1. Labels for Health? 1076 2. Disgust and Naturalness 1077 C. GMO Labels: Normative Considerations 1079 1. Market Failure 1079 2. Costs and Benefits 1080 a. Costs 1080 b. Millions of Labels, in Search of Benefits 1081 c. Options 1081 d. What Consumers Want 1083 3. But Morality? 1084 4. Drawing False Inferences 1085 5. A Summary 1087 III. PRECAUTIONS, IRREVERSIBILITY, AND UNCERTAINTY 1088 A. Worst Cases 1088 B. Precautions and Democracy 1091 CONCLUSION 1092 INTRODUCTION

When should government mandate labels? When would mandatory labels have desirable consequences for social welfare? How can those consequences be measured? When would labels do more good than harm?

Under Executive Order 12866, binding on federal executive agencies, some kind of market failure is ordinarily required to justify regulation, including mandatory labels (either a standard, neoclassical market failure or a behavioral market failure). (1) And even in the presence of a market failure, Executive Order 12866 allows regulation, including mandatory labels, to be imposed only if the benefits justify the costs (2)--an issue that presents unusual challenges in light of the immense and pervasive difficulty of quantifying both the benefits and the costs of labels. (3)

My principal goal here is to attempt to show how agencies can make progress in surmounting that difficulty, and thus to offer a guide suitable for use in many contexts, including (for example) calorie labels, energy efficiency labels, fuel economy labels, graphic warnings, and much more. Sometimes agencies can quantify both benefits and costs, or at least significant subsets of them, either by using endpoints (economic savings or health benefits) or by measuring private willingness-to-pay for labels. Sometimes they can point to human dignity, equity, or distributional concerns. (4) Sometimes they can engage in "breakeven analysis." As we will see, private willingness-to-pay is the best approach in theory, but measuring it raises serious empirical and conceptual challenges.

To anchor the discussion, I focus in particular on mandatory labels for food that contains genetically modified organisms (GMOs), because the topic has become significant in light of recent legislation, (5) and because it raises a number of general puzzles from which broader lessons can be drawn. In Europe, and increasingly in the United States, there is considerable public concern about GMOs and about food that contains them (GM food). (6) As a matter of science, the principal claims are that GM food poses, or might pose, public health risks, and that GMOs endanger, or might endanger, the environment. (7) (As we shall see, there are other claims as well.) In response to these claims, the most modest proposal is that GM food should be labeled as such, so that consumers can know what they are buying. (8) In its simplest and most intuitive form, the argument is that people have a right to know the ingredients of their food, at least when they fear that those ingredients pose risks to health or the environment.

In 2016, Congress embraced that argument, enacting legislation to require labeling of GM food. (9) The new legislation directs the Secretary of Agriculture to promulgate implementing regulations within two years. (10) Under existing Executive Orders, those regulations will have to be accompanied by some kind of formal cost--benefit analysis. (11)

The seemingly modest arguments in favor of mandatory labels for GM food raise fundamental questions about product labeling in general. For GM food in particular, a market failure is not simple to demonstrate, and it is even more challenging to show that the benefits of labels justify the costs. The first reason is that GM foods do not pose health risks at all, (12) and the standard (though hardly uncontested) reading of the science appears to be that the environmental risks are somewhere between nonexistent and highly speculative. (13) To that extent, GM labels might confer no tangible benefits on consumers. The second reason is that GM labels may affirmatively mislead some or many consumers by leading them to believe, falsely, that the government thinks that GM foods do pose risks to health or the environment. (14) Because it is not easy to show that the benefits of mandatory GM labels would justify the costs, there is a strong argument that such labels would run into serious difficulty during the process of scrutiny undertaken by the Office of Information and Regulatory Affairs under Executive Orders 12866 and 13563, (15) and may potentially face legal objections. (16)

On welfare grounds, a tempting argument for GM labels is straightforward: Many consumers want them, and they would be willing to pay something in return for them. Labeling is required because people demand it; in surveys, the overwhelming majority of Americans do favor mandatory labels. (17) But this argument runs into two objections. The first is the fact that the market is not, on its own, producing such labels. This objection is not fatal in light of potential market failures, behavioral and otherwise, but it does raise questions about the basic claim. People's responses to survey questions may not reflect what they really care about, as reflected in their general lack of interest in the topic at the grocery store or in restaurants. (18)

The second and more fundamental objection is that the consumer demand for labels (to the extent that it exists) appears to be based largely on the groundless belief that GM food is dangerous to human health. (19) If that belief is indeed groundless, public officials should correct it rather than cater to it. But it is possible to ask whether that conclusion is too simple. Those who embrace technocratic conceptions of government will have little interest in public fear as such. But those who favor certain forms of populism might insist that if people are fearful, officials should respond, not least because they need to maintain public trust (and should themselves be humble about how much the evolving science...

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