When are Private Standards more Stringent than Public Standards?

Thijs Vandemoortele, LICOS Centre for Institutions and Economic Performance, and Koen Deconinck, LICOS Centre for Institutions and Economic Performance

4/30/2014
(Original Publish Date: 3/25/2013)

Retailers’ private standards are increasingly important in addressing consumer concerns about safety, quality and social and environmental issues. Empirical evidence shows that these private standards are frequently more stringent than their public counterparts. This article develops a political economy model that may contribute to explaining this stylized fact. We show that if producers exercise their political power to persuade the government to impose a lower public standard, retailers may apply their market power to install a private standard at a higher level than the public one, depending on several factors.