Thursday, August 23, 2007

Economics of Restaurant Hygiene

Since this is a blog by an economics professor about restaurants, I thought I'd talk about some of the economics research about restaurants. My favorite paper on this subject is "The Effects of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," by Ginger Jin (University of Maryland) and Philip Leslie (Stanford University).

The research asks about the importance of restaurant hygiene, and more importantly what we know about hygiene. We all like to eat in restaurants where the place where we eat (which we see) and the place where food is prepared (which we don't see) are both clean. I think many of us are worried about what happens in the kitchen, and some of us probably stay away from restaurants we are particularly worried about. Local health inspectors routinely inspect restaurants (including the kitchen) for cleanliness and safety, occasionally fining or closing the worst restaurants. This gives restaurants little incentive to work on cleanliness in the kitchen beyond the minimum required to keep the restaurant open. Personally, I'd prefer a higher level of hygiene than this minimum. What can we do to improve kitchen hygiene beyond this low level?

Jin and Leslie look at a change in policy to tackle this problem in Los Angeles in 1998. Before then, restaurants were rated (1 to 100) on their cleanliness but no one knew what those ratings were. After that, grades of A, B, or C (think letter grades from school based on these ratings) had to be posted by the restaurant. So what happened when they made the change? According to Jin and Leslie:
1. Hygiene ratings improved. It makes sense that restaurants will try harder to improve hygiene when customers know about it.
2. There were fewer food-borne illnesses. This follows obviously from #1, I think.
3. Consumers started to take hygiene ratings into account. Restaurants with better hygiene got larger increases in business than those with worse ratings.

It seems clear this change is good for consumers. First, published ratings give consumers more information that they can use to make more informed choices, so they can now go to the cleaner restaurants if they prefer. Second, average restaurant hygiene improved so that any given restaurant will become cleaner on average.

So why don't all cities do this? There has been substantial resistance from restaurants (particularly the dirty ones, you might think), who are concerned that people will not eat out as often once they know how un-hygienic their favorite restaurant is. We know that cleaner restaurants gain from this law, but what about dirtier ones? Ginger Jin has told me that restaurant revenues went up even for the dirtier restaurants (perhaps consumers thought they were even dirtier than they actually were), and that overall restaurant revenues went up. This concern by restaurants is therefore unfounded.

Once rankings are published, formerly dirty restaurants now have an incentive to get clean. As a result, consumers should choose to go to restaurants more, both because average quality has improved but also because people no longer face the uncertainty about whether their restaurant is unclean.

If you want to eat out with confidence, write, call, or email your city council-person and tell them you want the local health department's rating posted in every restaurant.

(Thanks to Baltimore Snacker, whose post on hygiene ratings reminded me to write about this.)

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