Incomplete Disclosure: Evidence of Signaling and Countersignaling

Abstract

In 2011, Maricopa County adopted voluntary restaurant hygiene grade cards (A, B, C, D ). Using inspection results between 2007 and 2013, we show that only 58 percent of the subsequent inspections led to online grade posting. Although the disclosure rate in general declines with inspection outcome, higher-quality A restaurants are less likely to disclose than lower-quality A s. After examining potential explanations, we believe the observed pattern is best explained by a mixture of signaling and countersignaling: the better A restaurants use nondisclosure as a countersignal, while worse A s and better B s use disclosure to stand out from the other restaurants. (JEL D82, H75, I18, L15, L83, L88)

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