Certification as a Viable Quality Assurance Mechanism: Theory and Suggestive Evidence
AbstractIn this paper we address an asymmetric information problem in the fundraising industry, the fundraising problem. The problem arises from donors’ lack of information about the quality of charities that solicit donations. We focus on one particular solution of this problem, certification, where an independent agency provides a costly signal, a certificate, to charities that can use it to signal their ‘high’ quality. Our model is a signaling game involving three types of player: donors, charities and a certifier. We compare the decisions and impact of two types of certifier: one profit maximizing and one nonprofit. The assumptions of our model are derived from stylized facts that we distilled from certification systems currently existing in the fundraising industries of some European countries. While the current manuscript is meant to inform the real-world design and implementation of such a system in the Czech Republic and other transition economies, our work complements the literature on certification and provides results that are different from those reported up to now.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp288.
Date of creation: Feb 2006
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Experience goods; quality assurance; certification; self-regulation; enforcement.;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
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- Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
- Nunez, Javier, 2001. "A model of self-regulation," Economics Letters, Elsevier, vol. 74(1), pages 91-97, December.
- Lucia Quesada & Eloic Peyrache, 2003. "Monopoly intermediary and information transmission," Industrial Organization 0304005, EconWPA.
- Andreas Ortmann & Katarína Svítková, 2007. "Certification as a Viable Quality Assurance Mechanism in Transition Economies: Evidence, Theory, and Open Questions," Prague Economic Papers, University of Economics, Prague, vol. 2007(2), pages 99-114.
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