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Effectiveness of quality standards regulation considering the behavior of government and firms
Author(s) -
Pu Xujin,
Song Zhiping,
Han Guanghua
Publication year - 2018
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2907
Subject(s) - enforcement , collusion , local government , public economics , business , government (linguistics) , imperfect , quality (philosophy) , construct (python library) , social welfare , microeconomics , welfare , compliance (psychology) , economics , industrial organization , market economy , public administration , linguistics , philosophy , epistemology , political science , law , psychology , social psychology , computer science , programming language
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.