We study the effect of the presence of a certification intermediary in an environment where information asymmetries are particularly severe. The intermediary improves the information that buyers have about quality. This in turn increases the incentives that the seller has to provide high-quality goods. Efficiency is increased by the presence of the intermediary, but quality is underprovided in equilibrium relative to full information. The intermediary can implement the optimal policy in many ways. The amount of information revealed ranges from full disclosure to partial, noisy disclosure.
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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 42 (2001) Issue (Month): 1 (February) Pages: 267-83 Download reference. The following formats are available: HTML
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