Socio-economic implications of food waste: Business behavioural typologies and interrelationships

This report aims at identifying behavioural economic interrelationships and typologies that influence the adoption of innovations by businesses. The most important interrelationships and typologies identified will be included within an Agent-Based Model (ABM) aimed at assessing the likelihood of food businesses to create or adopt innovations for preventing (or reducing) food waste. This model will be used later in the project to analyse business behaviours. Standard economic theory postulates that possible social benefits granted by an innovation that targets food waste would not increase businesses’ propensity to adopt it, as firms seen as are rational, selfish, and not affected by social relations. Behavioural economics provides convincing evidence that real-world businesses deviate from the predictions of standard economic theory. Behavioural typologies indicate specific psychological factors that, beyond economic aspects, may affect the adoption of innovations by food companies, either as a driver or as a barrier. A literature review was systematically carried out in order to identify the main business behavioural typologies and interrelationships. These were then grouped into three categories, depending on the specific assumption of standard economic theory they challenge: that of rationality of economic agents, of selfishness, or of irrelevance of the social environment where they operate. For each category, a number of subcategories were identified, and the main stylized facts described. Non-rational firms show limited foresight and, therefore, adaptive expectations, are systematically biased in their process of processing information, react to uncertainty and risk according to the assumptions of prospect theory, and are time-inconsistent. Non-selfish businesses implement satisficing behaviours rather than standard profit maximisation, are influenced by values (such as pro-environmental ones), beliefs and norms, and may act pro-socially (altruistically), because they care about the well-being of others. Relevance of the social environment implies that businesses tend to trust or distrust, are concerned about the fairness of decisions and their distributional outcomes, tend to assess their position with respect to peers, implement reciprocal behaviours, try to build a positive reputation, and coordinate among them, e.g. through alliances or networks. Overall, the adoption of innovations aimed at addressing food waste emerged as a multidimensional phenomenon, and implies high uncertainty. The behaviour of every single business results from its idiosyncratic characteristics, its structural and managerial features, and the environment where they operate. Uncertainty may be addressed by sharing information, or through inter-firm coordination. Focusing on food processors and retailers, behavioural typologies correspond roughly to structural typologies. Two structural typologies can be identified: large businesses (e.g., publically traded processors, large-scale retailers) implement indirect reciprocity, favour formal coordination schemes, and tend to create innovations or to be early adopters; small firms (e.g., local processors, family businesses, traditional shops) resort to satisficing behaviour and prefer to imitate the innovation patterns of their most successful peers, thus complying later or partially with food regulations.