The hidden costs and benefits of BSE

Analyses the likely impact of the recent bovine spongiform encephalopathy (BSE) crisis on the organization of the UK beef supply chain. Using concepts from New Institutional Economics, argues that, in addition to the direct financial costs of the crisis, additional hidden transaction costs and long‐term “transaction benefits” should be considered. Hidden costs include the increased need for monitoring and traceability in the supply chain, while hidden benefits may result from a reorientation of the industry towards a more consumer‐driven focus, a greater attention to food safety issues and opportunities for branding and market segmentation. It is suggested that the hidden transaction costs and benefits are likely to lead to closer vertical co‐ordination throughout the beef supply chain.