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Differentiation inFood Safety
Ginger Z. JinUniversity of Maryland
(based on joint work withPhillip Leslie at Stanford)
Food Safety = the impact of food intake on health risk
Short run – throw-up, food poisoning hygiene
Long run – obesity, heart attack, diabetes nutrition contents production methods
What Do I Mean by Food Safety?
Two Meanings of Differentiation
Actual
difference
in
food safety
A Case Study of Los Angeles Restaurants
Nov. 16-18, 1997 CBS 2 News “Behind the Kitchen Door”
January 16, 1998, LA county inspectors start issuing
hygiene grade cards
A grade if score of 90 to 100
B grade if score of 80 to 89
C grade if score of 70 to 79
score below 70 actual score shown
Grade cards are prominently displayed
in restaurant windows
Score not shown on grade cards
Actual Differentiation
First Cut Major impacts after grade cards (GC)
dramatic increase in hygiene quality decrease in the dispersion of hygiene
quality revenue more responsive to hygiene
grade food-borne illnesses drop 20%
More information less differentiation
Why Differentiate After GC?
Information is equal
Different cost to maintain good hygiene Burger, Chinese cuisine, Sushi Bar
Different benefit from good hygiene consumer willingness to pay for good hygiene local competition
Why Differentiate Before GC?
Consumers know nothing no restaurant bothers to maintain good
hygiene pure noise
Consumers know everything restaurants choose to “be dirty” or “be clean” no response to GC
Consumers have lousy information equally lousy everywhere dispersion in the amount of information noise
Depends on the extent of consumer learning
chain affiliation
=> possible free-riding for franchisees
degree of repeat customers in local region
=> regional clustering in hygiene quality
How Could Information Differ Before GC?
Basic evidence - chain affiliation
Before GC
After GC
All restaurants 76.77 89.62
In Zagat 77.43 88.97
Chains 82.5 92.76
Company-owned chains
82.94 92.70
Franchised chains 81.84 92.87
Variation Across Chains
Before GC
After GC
com-owned 86.98 94.04
franchised 82.09 94.14
com-owned
81.49 90.83
franchised 78.12 92.04
com-owned
81.09 91.50
franchised 81.78 92.69
Statistically ... chains have better hygiene than independent
restaurants
company-owned chain units have better hygiene than franchised units
better hygiene if a chain has a greater number of units in LA county
better hygiene if a chain has a greater % of units in LA county
Repeat Customers-- Santa Monica before GC
Upper 1/3 Lower 1/3
Statistically ... better hygiene in heavy retail districts better hygiene in hotel districts worse hygiene in recreational districts no difference in white-collar employment
districts no difference as to whether competes
with at least one chain in the same census tract
Region clustering before GC
Regional clustering after GC
Statistically ... Significant regional clustering in
information structure
Different information structures lead to different reputation incentives, thus different hygiene quality
Summary - Information Matters! Large impact of GC suggests low degree of consumer
learning for most restaurants before GC No voluntary revelation before GC, although the
inspection records are public Zagat restaurants only slightly better in hygiene Chain affiliation is an effective source of information A small degree of franchisee free-riding Regional differences in the degree of consumer
learning impact hygiene quality for independent restaurants
Bottom line: only 25% “A” restaurants before GC, now is over 80%
1. Why is National Restaurant Association against GC?
2. Why don’t other counties adopt the same GC policy?
Two Remaining Questions
Lessons From Other Markets Voluntary disclosure of HMO quality is
incomplete and provides extra tools for HMOs to differentiate (Jin RAND)
Grade card regulation may lead to patient selection (Dranove et al. JPE) or inspector bias (Jin and Leslie in progress)
Private certifiers have strong incentives to differentiate in grading precision and grading criteria (Jin, Kato and List 2004)
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