THE IMPACT OF RESTAURANT

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THE IMPACT OF RESTAURANT HYGIENE GRADE
CARDS Ginger Z. Jin Department of
Economics University of Maryland Phillip
Leslie Graduate School of Business Stanford
University August 2, 2004
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Introduction

• In November, 1997, CBS 2 News in Los Angeles
  aired Behind the Kitchen Door
• January 16, 1998, LA county restaurant inspectors
  start issuing hygiene grade cards
• A grade if score of 90 to 100
• B grade if score of 80 to 89
• C grade if score of 70 to 79
• score below 70 actual score shown
• Grade cards are prominently displayed in
  restaurant windows
• Score not shown on grade cards

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Dataset

• Full details of every restaurant inspection in LA
  between Jan 1996 and Jul 2002
• Quarterly revenue for each restaurant in LA for
  1996, 1997 and 1998
• Number of people admitted to hospital with
  specific illnesses, in each month, in each
  3-digit-zip code, for all California from 1993 to
  2000

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Questions

• What is the impact of the grade cards on
• consumers restaurant choices
• restaurants hygiene quality
• incidence of foodborne illness?
• Why did some restaurants have high hygiene scores
  before grade cards?
• Do grade cards change the behavior of restaurant
  inspectors?

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Impact of Grade Cards onConsumers Choices

• Before grade cards, restaurant revenue is
  insensitive to changes in inspection scores
• After grade cards, revenue responds to grades
• A grade 5.7
• B grade 0.7
• C grade 1.0
• Total industry revenue increases by 3.3 (250
  million increase in LA)

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Impact of Grade Cards onAverage Inspection Scores

• BEFORE AFTER DIFF
• --------------------------------------------------
  --------------
• ALL restaurants 81.6 88.7
  7.1
• Chains 87.1
  92.6 5.5
• Zagat guide 78.4 88.6
  10.2
• Chinese food 78.4 86.3
  7.9
• Mexican food 82.5 88.9
  6.4
• Pizza 84.2
  89.7 5.5
• Low income areas 80.5 88.5
  8.0
• --------------------------------------------------
  ----------------
• All entries are statistically different from the
  mean for all restaurants

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Impact of Grade Cards onAverage Inspection Scores
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Impact of Grade Cards onFoodborne Illnesses

• We compare the number of food-related
  hospitalizations in LA with
• non-food-related hospitalizations in LA
• food-related hospitalizations outside LA
• We analyze hospitalizations for which 90 or more
  of cases are transmitted via food. This includes

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We find

• Grade cards cause 20 decrease in the number of
  food-related hospitalizations
• The effect is long-lasting
• at least from 1998 until end of 2000

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Scores before Grade Cards

• 25 A restaurants
• 12 chain restaurants
• regional clustering

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Inspector Behavior

• Grade cards make consumer demand sensitive to
  hygiene
• This creates incentives that may cause
• restaurants to improve hygiene
• inspectors grade inflation
• restaurant managers challenge violations
• inspectors may feel bad about the consequences of
  giving a B

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Other Stated Problems with Grade Cards

• Misleading consumers since may not have A-grade
  hygiene after inspection
• no different for inspections without grade cards
• Restaurant hygiene too complicated to summarize
  with a grade
• applies objective scientific criteria
• Unfair punishment for violations that are quickly
  fixed
• owner-initiated inspections

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Unanswered Questions

• Impact on restaurant prices?
• Impact on restaurants costs profits?
• Impact on number of restaurants?
• Impact on illnesses not resulting in
  hospitalization?
• Long term effects?