This paper revisits the issue of the regulatory choice between a mandatory label and a minimum-quality standard. When the cost of regulation is relatively low, we show that the socially optimal choice depends on the producers’ cost structure for complying with regulation and improving quality. Under a marginal cost for improving quality, the mandatory labeling is sufficient for reaching the socially optimal level of quality. Under a fixed cost for improving quality, we show that each instrument or the combination of both instruments may emerge at the equilibrium.
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
12486.
Length: Date of creation: 12 Dec 2005 Date of revision: Handle: RePEc:isu:genres:12486
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