The Production of Safe Food According to Firm Size and Regulatory Exemption: Application to FSMA



One feature of recent food regulations is that they treat small and large farms/firms differently. In this article, the relationship between firm output and food safety depends on firm-specific efficiency factors and how output and food safety interact in the cost function. The model shows that conditional on the distribution of firm output and food safety, new food safety regulations may increase the number of firms, with or without an exemption for small firms. Food safety regulations affect the composition of firms and may even create entry by less efficient firms. The article discusses implications of the Food Safety Modernization Act which includes exemption for small firms.