A day or two ago, I posted a note that said the USDA NOP standards will
only set a new minimum that many entrepreneurial farmers and processors
will soon choose to exceed. Craig Cramer then shared a website in which FVO
announced there intent to exceed government standards. For those of you so
inclined to review academic literature on how firms behave with regards to
standards, here is an abstract of a recent publication on how firms respond
to the establishment of minimum standards.
--- begin forwarded text
"An Empirical Investigation of Firms' Responses to Minimum
Standards Regulations"
BY: TASNEEM CHIPTY
Ohio State University
ANN DRYDEN WITTE
Wellesley College
Paper ID: NBER Working Paper No. 6104
Date: 1997
Contact: Tasneem Chipty
E-Mail: MAILTO:chipty.1@osu.edu
Postal: Ohio State University, Dept. of Economics,
1945 N. High Street, 410 Arps Hall, Columbus,
OH 43210
Phone: (614) 292-2051
Fax: (614) 292-3906
Co-Auth: MAILTO:wittea@fiu.edu
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the address above.
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
not only force low quality providers 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.
--- end forwarded text
Best Wishes,
Douglas B. Johnson
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