Incomplete Disclosure: Evidence of Signaling and Countersignaling
NBER Working Paper No. 22710
In 2011, Maricopa County, Arizona adopted voluntary restaurant hygiene grade cards (A, B, C, D). Using inspections results between 2007 and 2013, we show that only 58% of the subsequent inspections led to online grade posting. Although the disclosure rate in general declines with inspection outcome, higher-quality A restaurants are less likely to disclose than lower-quality As. After examining potential explanations, we believe the observed pattern is best explained by a mixture of signaling and countersignaling: the better A restaurants use nondisclosure as a countersignal, while worse As and better Bs use disclosure to stand out from the other restaurants.
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Document Object Identifier (DOI): 10.3386/w22710
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