Differentiation in
Food Safety
Ginger Z. Jin
University of Maryland
(based on joint work with
Phillip Leslie at Stanford)
What Do I Mean by Food Safety?
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
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



Consumers know everything



no restaurant bothers to maintain good
hygiene
pure noise
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
How Could Information Differ Before GC?
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
Basic evidence - chain affiliation
All restaurants
Before
GC
76.77
After
GC
89.62
In Zagat
77.43
88.97
82.5
92.76
82.94
92.70
81.84
92.87
Chains
Company-owned
chains
Franchised chains
Variation Across Chains
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%
Two Remaining Questions
1. Why is National Restaurant
Association against GC?
2. Why don’t other counties adopt the
same GC policy?
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)