An Empirical Investigation of Firms' Responses to Minimum Standards Regulations / Tasneem Chipty, Ann Dryden Witte.

Format:

Book

Author/Creator:

Chipty, Tasneem.

Contributor:

National Bureau of Economic Research.

Witte, Ann Dryden.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6104.

NBER working paper series no. w6104

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

We study firms' responses to minimum standards and other forms of regulatory intervention on both the probability of exit and the distribution of observable product quality, using firm level data for a nationally representative sample of markets. Our empirical work is motivated by the literature on quality and price competition in the presence of minimum standards. We find that minimum standards increase the probability that firms exit certain markets. Moreover, we find that exit can cause both the average and the maximum quality observed in the market to decline. This perverse regulatory effect occurs when excessively high standards cause high quality firms to exit. When minimum standards do not lead to exit, minimum standards can increase the average and maximum quality of products in the market. Such standards can not only force low quality firms to raise their quality, but may cause high quality firms to increase quality, presumably in an attempt to alleviate price competition and differentiate themselves from their now higher quality rivals.

Notes:

Print version record

July 1997.