How can consumers be assured that firms will endeavour to provide good quality when quality is unobservable prior to purchase? We test the hypothesis that reputational incentives are effective at causing restaurants to maintain good hygiene quality. We find that chain-affiliation provides reputational incentives and franchised units tend to free-ride on chain reputation. We also show that regional variation in the degree of repeat-customers affects the strength of reputational incentives for good hygiene at both chain and non-chain restaurants.
Reputation Incentives for Restaurant HygienePhillip Leslie and Ginger Jin ,
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American Economic Journal: Microeconomics