DESIGNING FOOD SAFETY REGULATIONS: THE EFFECT OF INSPECTION POLICY AND PENALTIES FOR NONCOMPLIANCE ON FOOD PROCESSOR BEHAVIOR

In the United States, federal, state, and local governments are involved with the regulation of the safety of the food supply. Food safety regulations that set standards for food processors usually include inspection policies for monitoring performance and penalties for processors who do not comply with regulatory standards. In this analysis, we examine how penalties and inspection policies interact to influence processor behavior. We distinguish between internal penalties (imposed by the regulator) and external penalties (imposed by the market or by the court). Using a model of the processor's expected annual cost, we find that under a given inspection policy internal penalties are only relevant under specific conditions. For cases in which internal and external penalties can be influenced, we use comparative statics to discover that internal penalties are more economically efficient for motivating processors than external penalties. These results imply that regulators should utilize internal penalties for noncompliance rather that rely on market or court-imposed penalties.
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Starbird, S. Andrew, DESIGNING FOOD SAFETY REGULATIONS: THE EFFECT OF INSPECTION POLICY AND PENALTIES FOR NONCOMPLIANCE ON FOOD PROCESSOR BEHAVIOR, Journal of Agricultural and Resource Economics, Volume 25, Issue 2, December 2000, Pages 616–635

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