CLOSURE THROUGH DISCLOSURE: EFFECTS OF MANDATORY INFORMATION DISCLOSURE ON RESTAURANTS' CLOSURE IN NEW YORK CITY.

Abstract

This paper studies the effect of disclosure of hygiene information on restaurants’ closure. In July 2010, New York City started giving out hygiene grades based on hygiene scores for restaurants, and mandates that the hygiene grade cards must be displayed prominently at the storefront. I hypothesise that restaurants with better grade will have a smaller likelihood of closure, while restaurants with better score will not benefit from a smaller likelihood of closure. This is due to the lower cost of acquiring information about hygiene grades as well as the saliency of the hygiene grade to consumers. Using a regression discontinuity design, I find that restaurants with grade “A” have a smaller likelihood of closure, relative to restaurants with grade “B”. This effect is stronger for non-chain restaurants and restaurants located in high-income areas. Using an instrumental variable analysis, I find that having a higher score reduces the likelihood of closure.