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Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

Front. Econ. China    2014, Vol. 9 Issue (2) : 240-260     DOI: 10.3868/s060-003-014-0013-8
research-article |
Inspections and Information Disclosure: Quality Regulations with Incomplete Enforcement
Liguo Lin1(),Lan Yao2()
1. School of Economics; Key Laboratory of Mathematical Economics (MOE), Shanghai University of Finance and Economics, Shanghai 200433, China
2. School of Economics; Key Laboratory of Mathematical Economics (MOE), Shanghai University of Finance and Economics, Shanghai 200433, China
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Abstract  

The weak enforcement and monitoring systems employed in China (e.g., insufficient inspection resources and negligible fines for noncompliance) are widely blamed for the growing unrest over food safety in the country. Given this development, we consider a model where quality inspection performed by agencies is a means of disclosing information on product quality. We analyze the price-quality equilibrium scheme and show that a higher probability of inspection leads to lower price premiums attached to qualified products. We further investigate the welfare effect of minimum quality standards and inspection efforts and show that they should be complementary. We finally suggest that a state dependent inspection strategy, such as not inspecting those firms that have previously been found to be noncompliant, will enhance social welfare.

Keywords food safety      information disclosure      quality regulation      incomplete enforcement     
Issue Date: 04 July 2014
URL:  
http://academic.hep.com.cn/fec/EN/10.3868/s060-003-014-0013-8     OR     http://academic.hep.com.cn/fec/EN/Y2014/V9/I2/240
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