This paper develops a framework for measuring the plant-level cost of quality regulations, based on models of the production of quality-differentiated products. This framework emphasizes the potential importance of the impacts of regulations on both variable and fixed costs of production. Evidence on the potential impacts of food safety regulation on variable costs of production is presented from a recent study of the meat and poultry industry.

This paper begins with a discussion of the structure of cost functions for meat plants producing quality-differentiated products, focusing on the jointness properties of conventional inputs and quality control inputs. This structure is used to explore how the plant-level costs of performance standards and design standards can be measured, including difficulties in ex ante assessment when only parameters of the pre-regulation technologies are known. A topic identified for future research is to compare the accuracy of ex ante estimates of the costs of regulation with the observed ex post costs of regulation.

These results are used to investigate implications for the costs of the HACCP regulations being implemented by USDA. In its regulatory impact assessment, the Food Safety Inspection Service of USDA assumed the HACCP regulations would not affect the productivity of meat and poultry plants or their variable cost of production. Estimates of variable cost functions for beef, pork, and poultry plants in the United States show that variable costs of production are an increasing function of product quality, and variable costs of production are a large share of total cost. The analysis shows that safety regulations that significantly affect the efficiency of the production process can significantly raise the cost of production. These costs were not included in the FSIS' regulatory impact assessment of the HACCP regulations. When it is assumed that the cost of production will increase with the effectiveness of the regulations, the analysis indicates that the costs of the regulations are likely to equal or exceed the benefits estimated by FSIS. This analysis also shows that small beef and poultry plants are likely to experience a greater cost increase than large plants, and that beef plants' costs are likely to be increased more than pork or poultry plants.

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