Voluntary vs. Mandatory Approaches to Food Safety: Considering Heterogeneous Firms

Abstract

A critical assessment of voluntary approaches in regulatory programs is presented. When accounting for heterogeneous firms, with varying effectiveness of risk control, the optimality of a lump-sum financial incentive to encourage voluntary adoption is questioned. The paper uses a game-theoretic model to characterize the strategies of a regulator and firms. Using robust comparative statics, it can be shown that less efficient firms are less likely to participate in a voluntary food safety program. Adverse selection leads to lower overall risk control, suggesting mandatory control may be preferred.