Mandatory disclosure, letter-grade systems, and corruption: The case of Los Angeles County restaurant inspections

Matthew Makofske

Journal of Economic Behavior & Organization, 2020, vol. 172, issue C, 292-313

Abstract: During unannounced hygiene inspections, Los Angeles (LA) County restaurants receive numeric scores out of 100 points. In their windows, they must post letter grades revealing broad intervals to which their scores belong. Relative to numeric-score disclosure, this system creates strong incentives for score manipulation below letter-grade thresholds. Using LA County restaurant inspections spanning 2014–2016, I test for manipulation by exploiting a feature of the county’s scoring criteria. While most health code violations carry a single prescribed 1, 2, or 4-point deduction; there are eleven violations where, depending on severity, 2 or 4 points may be deducted. Even when compared with inspections exhibiting better hygiene quality, restaurants on the margins of higher letter grades are 28–40% more likely to receive the lesser deduction on these violations, and the effect is significant across all eleven violation types. Score manipulation likely improved letter grades in 27% of inspections where deduction decisions had letter-grade implications. In regulated industries—beyond distorting producer incentives—seemingly minor disclosure-policy design features can unintentionally promote regulatory capture.

Keywords: Mandatory disclosure; Quality information; Manipulation; Regulatory capture; Restaurant hygiene (search for similar items in EconPapers)
JEL-codes: D82 I18 K32 L15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Mandatory Disclosure, Letter-Grade Systems, and Corruption: The Case of Los Angeles County Restaurant Inspections (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:172:y:2020:i:c:p:292-313

DOI: 10.1016/j.jebo.2020.02.022

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