What Do Consumers Learn from Regulator Ratings? Evidence from Restaurant Hygiene Quality Disclosures

Abstract

Across a range of industries, regulators use ratings to inform consumers about firms and products. Using online experiments, we investigate two pathways through which individuals extract the information communicated by such ratings: beliefs about the distribution of ratings (e.g., how often good ratings are given) and expertise about what factors determine a good rating. We provide evidence that failures along either pathway can lead to systematic misperceptions of the informational content of regulatory ratings, which can then distort a consumer’s willingness to pay for a product with a particular rating.

Keywords: Disclosure, Ratings, Certification