Minimum quality standard regulation and entrepreneurial innovation

Bryan McCannon

Journal of Entrepreneurship and Public Policy, 2018, vol. 8, issue 2, 217-225

Abstract: Purpose - The purpose of this paper is to explore the impact that minimum quality standards have on product quality when entrepreneurial innovation is considered. Design/methodology/approach - The author develops a game-theoretic model. It is a standard vertical product differentiation model, but incorporates a minimum quality standard and uncertain entrepreneurial innovation. Findings - While the minimum quality standard increases the expected quality of the low-quality product, under reasonable circumstances the expected quality of the high-quality good decreases. Thus, average quality can decrease with regulation intended to increase product quality. Research limitations/implications - Past research on minimum quality standards does not consider its impact on entrepreneurial effort when their innovation investments lead to uncertain outcomes. Practical implications - Minimum quality standard regulation can have counterproductive impacts if the impact on entrepreneurs is not considered. The regulation can disincentivize entrepreneurs leading to lower quality products. Social implications - Regulation can be welfare reducing. Originality/value - This paper is the first to incorporate entrepreneurial innovation into a product quality model to explore the impact of minimum quality standard regulation.

Keywords: Entrepreneurship; Regulation; Product quality; Minimum quality standard; Vertical product differentiation; D84; D03; C72 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jepppp:jepp-d-18-00020

DOI: 10.1108/JEPP-D-18-00020

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