What a Difference a Grade Makes: Evidence from New York City's Restaurant Grading Policy

Published date01 September 2019
Date01 September 2019
AuthorDiana Silver,Amy Ellen Schwartz,Todor Mijanovich,Zachary Papper,Thad D. Calabrese,Rachel Meltzer,Michah W. Rothbart
DOIhttp://doi.org/10.1111/puar.13091
What a Difference a Grade Makes: Evidence from New York City’s Restaurant Grading Policy 651
Zachary Papper is director of analytics
for global financial crimes compliance at
American Express. He previously served
as director of the Data Intelligence Group
in the Tax Policy Division of the New York
City Department of Finance, where he
concurrently worked during his efforts on
this project. He holds a PhD in molecular
medicine from the Wayne State University
School of Medicine.
E-mail: zpapper@gmail.com
Thad D. Calabrese is associate
professor in the Robert F. Wagner Graduate
School of Public Service and currently leads
the finance specialization at the school. His
research interests span topics in financial
management of government, not-for-profit,
and health care organizations. He holds a
doctorate in public administration from New
York University’s Robert F. Wagner School of
Public Service.
E-mail: thad.calabrese@nyu.edu
Amy Ellen Schwartz is Daniel
Patrick Moynihan Chair in Public Affairs
and professor of economics and public
administration in the Maxwell School of
Syracuse University and professor emeritus
of public policy, education, and economics
at New York University. She is editor of
Education Finance and Policy
and former
president of the Association for Education
Finance and Policy. Her research spans
education policy, urban economics, and
public finance. She holds a doctorate in
economics from Columbia University.
E-mail: amyschwartz@maxwell.syr.edu
Abstract: Can governments use grades to induce businesses to improve their compliance with regulations? Does public
disclosure of compliance with food safety regulations matter for restaurants? Ultimately, this depends on whether grades
matter for the bottom line. Based on 28 months of data on more than 15,000 restaurants in New York City, this
article explores the impact of public restaurant grades on economic activity and public resources using rigorous panel
data methods, including fixed-effects models with controls for underlying food safety compliance. Results show that
A grades reduce the probability of restaurant closure and increase revenues while increasing sales taxes remitted and
decreasing fines relative to B grades. Conversely, C grades increase the probability of restaurant closure and decrease
revenues while decreasing sales taxes remitted relative to B grades. These findings suggest that policy makers can
incorporate public information into regulations to more strongly incentivize compliance.
Evidence for Practice
Integrating consumers into the regulatory framework can create new and substantial incentives for improved
compliance.
Providing consumers with salient information can increase compliant behavior without stronger
implementation of punitive regulatory instruments.
Public grades, which provide consumers salient information, may be an effective regulatory approach in
arenas with commonly established standards of practice.
Consumer-based regulatory approaches have important effects on both the level and mix of public revenues,
which governments should consider in evaluating the costs and benefits of information-based regulation.
Michah W. Rothbart is assistant
professor of public administration and
international affairs in the Maxwell School
of Syracuse University and senior research
associate in the Center for Policy Research.
His research focuses on public finance and
financial management, particularly in the
fields of education and food policy. He holds
a doctorate in public administration from
New York University’s Robert F. Wagner
School of Public Service.
E-mail: mwrothba@syr.edu
What a Difference a Grade Makes: Evidence from New York
City’s Restaurant Grading Policy
Michah W. Rothbart
Amy Ellen Schwartz
Thad D. Calabrese
Zachary Papper
Todor Mijanovich
Rachel Meltzer
Diana Silver
Syracuse University
New York University
New York University New York University
American Express The New School
Research Article
In July 2010, the New York City Department of
Health and Mental Hygiene (DOHMH) began
requiring restaurants to post summary results
of food safety inspections in the form of letter
grades (A, B, or C) in a conspicuous location near
the restaurant’s entrance. In 2012, Ne w York City
mayor Michael R. Bloomberg touted the success of
the letter grades, claiming that they had beneficial
health and economic effects: declines in reported
cases of Salmonella and hospitalizations due to
foodborne illness, improvements in compliance
with food safety regulations, and increases in total
restaurant sales (9.3 percent or $800 million)
(City of New York, Office of the Press Secretary
2012). However, this enthusiasm was not shared
by the restaurant industry, which charged that the
new public grading program hampered business.
Andrew Rigie, executive vice president of New York
City’s chapter of the New York State Restaurant
Association, contended that “if you define success as
taxing small-business owners and making their lives
miserable, then letter grades have been a complete
success” (Saul 2012).
Thus, the debate about whether grading policies
are appropriate and effective regulations to improve
practice in the private sector continues. Grading
reforms are intended to improve compliance with
food safety regulations by offering consumers
information as an enforcement mechanism. Public
restaurant grades have a clear intuitive appeal: grades
provide easy-to-access information about restaurant
food safety, allowing consumers to make informed
decisions about where to eat (“vote with their feet”),
directing business to restaurants with high grades
and perhaps lower risks of foodborne illness.1 The
magnitude of the effect is unknown, depending,
in part, on the distribution of letter grades and
behavioral responses by consumers and restaurant
owners.
The extent to which the grading policy creates
incentives for restaurants to improve compliance—
or, conversely, simply operates as a tax by increasing
the costs of operating businesses without improving
compliance—is an empirical question explored in this
article. If grading policies were incredibly successful,
Public Administration Review,
Vol. 79, Iss. 5, pp. 651–665. © 2019 by
The American Society for Public Administration.
DOI: 10.1111/puar.13091.

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