5 (J. Henry) Ch05. Economic Impacts – Micro Perspective turn. Rules of conduct and product standards in numerous areas of activity help us avoid inefficiency, harmful surprises, and high costs. In the case of product standards, for example, faxes can be sent around the world because fax machines obey a common protocol. Computer files can be shared because computers employ various standardized hardware and software formats.’ The WTO report further states that the ‘economic cost from accidental injuries and deaths can be large. In the United States for example, there were more than 12 million accidents in 2003 from the use of consumer products that required patients to be treated in hospitals. The US Consumer Product Safety Commission estimates the economic costs of these accidental deaths and injuries at $700 billion annually’.
5.2.4 Information asymmetries The WTO report also describes the mechanisms by which standards can act to prevent market failure, including through addressing information asymmetries. ‘Information asymmetries occur when producers have information about the characteristics of goods they produce which users do not possess. Whether as end consumers or as producing firms acquiring inputs, buyers may be at a significant disadvantage compared to sellers because the latter possess information about the good or service not available to the buyer. This asymmetry can significantly hamper the efficient functioning of markets, and standards can help solve the problem and increase efficiency.’ Goods can be classified into three categories according to the information consumers can readily ascertain about them when seeking to make a purchase: search goods, experience goods and credence goods. In the case of search goods, all necessary information can be readily assessed by the consumer before purchase, for example by trying on clothing. With other goods, their quality can only be assessed through use or consumption by the consumer after purchase and then compared to the satisfaction the consumer has experienced with competitive goods in the market. These are referred to as experience goods where the use of the goods will dictate whether or not the consumer feels inclined to make a subsequent purchase. The third type of goods are those that are difficult for the consumer to assess, even with experience, either because their effect is hard to measure or the consumer has little comparative experience. These are called credence goods because the consumer must rely upon the assessments made by others whom the consumer trusts. In the television example, a consumer cannot hope to personally assess the factors described above that would ensure the set is safe, fit for purpose and of acceptable quality. A television is an expensive and durable item. Even if one wanted to rely on personal experience, the period between subsequent purchases would be such that models and technologies will have no doubt changed. Instead, a television is a credence good. The consumer must rely on the standards and conformance system to convert those required attributes of safety, quality and fitness for purpose into technical standards and apply conformity assessment to control the compliance of the set with the technical standard. It then becomes a matter of how the