An Empirical Investigation of Firms' Responses to Minimum Standards Regulations
We study firms' responses to minimum standards and other forms of regulatory intervention on both the probability of exit and the distribution of observable product quality, using firm level data for a nationally representative sample of markets. Our empirical work is motivated by the literature on quality and price competition in the presence of minimum standards. We find that minimum standards increase the probability that firms exit certain markets. Moreover, we find that exit can cause both the average and the maximum quality observed in the market to decline. This perverse regulatory effect occurs when excessively high standards cause high quality firms to exit. When minimum standards do not lead to exit, minimum standards can increase the average and maximum quality of products in the market. Such standards can not only force low quality firms to raise their quality, but may cause high quality firms to increase quality, presumably in an attempt to alleviate price competition and differentiate themselves from their now higher quality rivals.
|Date of creation:||Jul 1997|
|Publication status:||published as Children and Youth Services Review, Vol. 21 (April 1999): 111-146.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Crampes, Claude & Hollander, Abraham, 1995.
"Duopoly and quality standards,"
European Economic Review,
Elsevier, vol. 39(1), pages 71-82, January.
- Crampes, C. & Hollander, A., 1991. "Duopoly and Quality Standards," Cahiers de recherche 9128, Universite de Montreal, Departement de sciences economiques.
- Crampes, C. & Hollander, A., 1992. "Duopoly and Quality Standards," Papers 92.g, Toulouse - GREMAQ.
- Crampes, C. & Hollander, A., 1991. "Duopoly and Quality Standards," Cahiers de recherche 9128, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Tasneem Chipty & Ann Dryden Witte, 1994. "Economic Effects of Quality Regulations in the Daycare Industry," NBER Working Papers 4953, National Bureau of Economic Research, Inc.
- Gruenspecht, Howard K. & Lave, Lester B., 1989. "The economics of health, safety, and environmental regulation," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 26, pages 1507-1550 Elsevier.
- Chipty, Tasneem, 1995. "Economic Effects of Quality Regulations in the Day-Care Industry," American Economic Review, American Economic Association, vol. 85(2), pages 419-424, May.
- Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-764, May.
- Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter. Full references (including those not matched with items on IDEAS)