How can consumers be assured that firms will endeavor to provide
good quality when quality is unobservable prior to purchase? We
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 nonchain restaurants.
Despite these incentives, a policy intervention in the form of posted
hygiene grade cards causes significant improvements in restaurant
hygiene. (JEL I18, I19, L14, L83).
"Reputational Incentives for Restaurant Hygiene."
American Economic Journal: Microeconomics,
Health: Government Policy; Regulation; Public Health
Transactional Relationships; Contracts and Reputation; Networks
Sports; Gambling; Recreation; Tourism