Jin-Leslie paper, G604, Rasmusen, April 21, 2003

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Jin-Leslie paper, G604, Rasmusen, April 21, 2003
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Central Question

• The central question of this study is when
  there is an increase in the provision of
  information to consumers about firms products
  (e.g. product quality information), does this
  cause firms to change their behavior (e.g.
  improve their product quality?) (p. 1)
• The dataset has exogenous variation, via 3
  regimes
• 1. Voluntary disclosure without a standard format
• 2. Voluntary disclosure with a standard format
• 3. Mandatory disclosure with a standard format

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The Literature

• Stigler (1961) Search paper
• Nelson (1970) Advertising
• Nelson (1974) Ads as signals
• Benham (1972) eyeglass advertising bans
• Mathios (2000) J. of Law and Economics, salad
  dressing fat content. Demand fell for salad
  dressing.
• Jin (2000), under revision for RAND J. of
  Economics, HMOs. ???

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History
July 1, 1997 Subjective part of inspection
report eliminated. November 16-18 1997 TV
three-part report on unclean restaurant
kitchens December 16, 1997 Los Angeles County
Board of Supervisors unanimously votes for a
grade card ordinance January 16, 1998 All
restaurants get grade cards. In unincorporated
parts of LA County, and some incorporated parts,
restaurants must post the grade cards.
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Conclusions

• 1. No restaurants voluntarily disclosed their
  quality before the grade cards
• 2. Quality rose with the new grade cards,
  whether disclosure was voluntary or mandatory
• 3. Mandatory disclosure made quality rise more
• 4. Prices went down and output rose, in addition
  to the quality increase