Regulatory Choice between a Label and a Minimum-Quality Standard, The
December 2005 [05-WP 416]
Marette, S. 2005. "Regulatory Choice between a Label and a Minimum-Quality Standard, The." Working paper 05-WP 416. Center for Agricultural and Rural Development, Iowa State University.
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.
Keywords: cost of regulation, information, standard.