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This paper uses a mandatory quality disclosure policy, the Nursing Home Quality Initiative (NHQI), to investigate how quality ‘report cards’ affect firms’ choices of multidimensional product quality. I show that after the introduction of NHQI: (1) scores of quality measures improve for the reported dimensions but deteriorate for the unreported ones; (2) there is no evidence that nursing homes decrease quality‐related inputs; (3) consumer demand becomes sensitive to changes in the NHQI quality measures. These findings are consistent with the multitasking hypothesis that firms may respond to information disclosure by reallocating effort across dimensions of quality without necessarily increasing overall quality.
Susan Lu (Wed,) studied this question.