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Effectiveness of quality standards regulation considering the behavior of government and firms

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  • Xujin Pu
  • Zhiping Song
  • Guanghua Han

Abstract

We construct an analysis framework consisting of the central government, a local government, a representative firm, and consumers. This study analyzes how the local government's enforcement, the firm's compliance, and their interaction influence the effectiveness of regulation after the central government has established policies regarding quality standards. We construct three scenarios: perfect enforcement, imperfect enforcement, and collusion. We show that when the local government imperfectly enforces the regulation, the firm's utility and the local government's utility are higher, whereas the degree of the firm's compliance, consumers' utility, and the level of social welfare are lower. When there is collusion between the local government and the firm, the firm's utility and the local government's utility are the highest, but the degree of the firm's compliance, consumers' utility, and the level of social welfare are the lowest among the different scenarios. This study proves that the behavior of governments and firms plays a vital role in the effectiveness of quality standards regulation.

Suggested Citation

  • Xujin Pu & Zhiping Song & Guanghua Han, 2018. "Effectiveness of quality standards regulation considering the behavior of government and firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(3), pages 335-345, April.
    • Handle: RePEc:wly:mgtdec:v:39:y:2018:i:3:p:335-345
    DOI: 10.1002/mde.2907
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    Cited by:

    1. Gustavo Magalhães de Oliveira & Paula Sarita Bigio Schnaider & Maria Sylvia Macchione Saes & Gaetano Martino, 2023. "Do private translation mechanisms encourage food safety in dairy production? Evidence from the Brazilian Conseleites," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 862-875, March.

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