Jin Leslie (2009) - Reputational Incentives For Restaurant Hygiene
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Jin, G. and P. Leslie (2009) "Reputational Incentives for Restaurant Hygiene", American Economic Journal: Microeconomics, 1(1): 237-67 (Supplemental Reading) pdf
How can consumers be assured that firms will endeavour to provide good quality when quality is unobservable prior to purchase? We study the example of restaurant hygiene and test the hypothesis that reputational incentives are effective at causing restaurants to maintain good hygiene quality. We find that chain-affiliation provides reputational incentives and franchised units tend to free-ride on chain reputation. We also show that regional variation in the degree of repeat-customers affects the strength of reputational incentives for good hygiene at both chain and non-chain restaurants. Despite these incentives, a policy intervention in the form of posted hygiene grade cards causes significant improvement in restaurant hygiene. We conclude that even when there is merit to the argument that reputational incentives operate as a market-based mechanism for mitigating informational problems, they may be a poor substitute for full information.