On Safety in the U.S. Food Supply

This thesis is broadly composed of a theoretical analysis and an empirical investigation on the incentives and drivers of safety in a supply chain, with particular focus on the U.S. food supply. In the theoretical piece, I use a neoclassical approach to develop a supply chain framework with two firms. I use this framework to analyze how potential for change in demand due to food safety incidents, and the liability for losses associated with such safety incidents, impacts the firm's decisions regarding level of safety and output to undertake. Combining such demand and liability considerations for investing in safety in a supply chain framework is a new approach, which allows for a richer analysis of firm behavior with respect to safety. The supply chain framework and the associated analyses contribute to the growing literature on food safety. I also reconstruct results for a single firm model, which has been a cornerstone of studies on product liability. To further understand what the food firms are actually doing with respect to safety, I undertake an empirical investigation of the results of qualitative survey data from food industry firms on issues related to safety. Using tools for statistical analysis, such as factor analysis, latent trait analysis and regression analysis, I examine the security preparedness of the firms. Further, I analyze the influence of certain characteristics of the firm and its operating environment identified in the theoretical framework on preparedness levels. I also examine what the firm's preparedness levels imply for firm's security and business performance.;Through this research I find that the level of safety that a firm implements is increasing function of firm size and how sensitive the consumer demand is to safety related incidents. Larger firms that cater to consumers who are concerned about the safety of the food they consume will implement greater safety levels, thereby increasing the overall safety of their supply chains. The consumers' sensitivity to, and hence, demand for safety is the primary incentive mechanism that the market provides for the firms to implement safety. In cases where the demand incentive is not sufficient, the firm's liability for losses due to safety incidents provides an additional mechanism to increase the level of safety implemented by the firms. I analyze how the two incentives work to ensure a safer food supply and find conditions under which the liability incentive can help in restoring safety to the adequate levels as implied by the consumer demand. I contrast the effect of liability on optimum output and safety under certainity in being held liable for potential losses with that of uncertainity in being held liable for such losses, and find that uncertainity dampens the liability incentive. With this analysis I also find that consumer's sensitivity to safety or firm liability reduces the quantity of food produced, a trade-off that has important policy implications.;As part of the empirical investigation I look at self assessments made by U.S. firms on a wide array of measures implemented to ensure the safety of their products and supply chains. These heterogenous measures are factored into four dimensions of preparedness- 1)firm-centric measures, 2) supply chain collaboration measures, 3) security emergency preparedness measures, and 4) measures to track products and people on firm premises. Firm size emerges as the single important indicator of preparedness across all dimensions, followed by market area and tax status of the firm. I also find that manufacturers report better preparedness levels than retailers. The preparedness dimensions also correlate with the security and performance measures (and one business performance measure - operating costs) as expected. An interesting implication from this analysis is that firms can improve their preparedness levels by collaborating more with supply chain partners, which they report to have no statistically significant negative impact on their business performance.