Government regulation and quality in the US beef market

We show how government regulation played a critical role in shaping the beef industry over the past century. Technological developments in the late 19th century led to a highly concentrated meat-packing industry and fostered a national market for beef in the US, and the development of a national market for beef led to regulations to ensure quality uniformity, especially USDA grading. We explain the problems with beef quality created by USDA grading using tools from information economics. Because USDA's fairly coarse grading system failed to measure significant aspects of beef quality, beef production suffered from the multi-tasking problem, which led producers to focus on producing larger quantities of beef while ignoring quality issues. We show that producing high quality beef requires either ex ante input controls or ex post sorting. In turn, we show how newly developed programs such as USDA quality certification and branding are incentivizing production of higher beef quality and dealing with information problems arising under USDA grading. We conclude with the implications of the regulatory history for current regulation of beef markets. (C) 2006 Elsevier Ltd. All rights reserved.