On The Efficiency of Management-Based Regulation: A Case Study of the UK Poultry Inspection Regime

Food safety is a key policy area that has recently witnessed substantial alignment of risk profiles and regulatory interventions. More risk-based and flexible approaches to food safety controls are increasingly adopted to ensure that greater emphasis is placed upon incentives for compliance through, for example, use of preventive food safety management systems aimed at encouraging food firms to manage risk associated with their products and processes. Among the new regulatory approaches are Management-Based (MB) strategies which are implemented in food and environmental safety controls. However, there is surprisingly no published research that empirically evaluates the efficiency of the strategy in food policy areas applied. In this paper, we first develop a mixed principal-agent model to study the incentives for efficient provision of food safety under a MB regime adopted to enforce EU food hygiene legislation in the UK poultry sector. We then econometrically test the corollary propositions of the theoretical model by using rich panel data on inspection costs and compliance records for the firms governed by the regime. Findings indicate that the MB regime entails significant losses of regulatory efficiency due to sizeable economic rents appropriated by the firms through underperformance in delegated official hygiene controls.