The Appeal of Third-party Certifications: Information Unraveling in Natural Experiments
AbstractDespite the abundance of studies on consequences of certification, there is little empirical research on what motivates sellers to attempt certifications in the first place. One of the most intriguing theoretical predictions is the “information unraveling” proposition, which predicts a “domino- effect” in sellers’ certification-seeking behavior when a certification opportunity arises. To test this proposition, and to further identify factors that motivate sellers to seek certifications, we exploit two unique natural experiments and detailed transaction data on a global online labor market. The first natural experiment was the introduction of certifications into the market, with a fee; and the second occurred when certification exams were made free. We derive and test hypotheses on factors that motivate sellers to seek certifications, including word-of-mouth, repeat customers, cost of certification, and informational cascading. We also find that, contrary to theoretical predictions, certification status negatively impacts some sellers’ ability to obtain contracts. These findings have important managerial as well as academic implications.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 12-02.
Length: 34 pages
Date of creation: Sep 2012
Date of revision:
Contact details of provider:
Web page: http://www.NETinst.org/
third-party certification; quality disclosure; information asymmetry; signaling; information unraveling; cascading; online labor markets; online outsourcing;
Find related papers by JEL classification:
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
- J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary E. Bolton & Elena Katok & Axel Ockenfels, 2003.
"How Effective are Electronic Reputation Mechanisms? An Experimental Investigation,"
Working Paper Series in Economics
3, University of Cologne, Department of Economics.
- Gary E. Bolton & Elena Katok & Axel Ockenfels, 2004. "How Effective Are Electronic Reputation Mechanisms? An Experimental Investigation," Management Science, INFORMS, vol. 50(11), pages 1587-1602, November.
- Chrysanthos Dellarocas, 2003. "The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms," Management Science, INFORMS, vol. 49(10), pages 1407-1424, October.
- Spence, A. Michael, 2001.
"Signaling in Retrospect and the Informational Structure of Markets,"
Nobel Prize in Economics documents
2001-6, Nobel Prize Committee.
- Michael Spence, 2002. "Signaling in Retrospect and the Informational Structure of Markets," American Economic Review, American Economic Association, vol. 92(3), pages 434-459, June.
- Kelly Bedard, .
"Human Capital Versus Signaling Models: University Access and High School Drop-outs,"
Canadian International Labour Network Working Papers
19, McMaster University.
- Kelly Bedard, 2001. "Human Capital versus Signaling Models: University Access and High School Dropouts," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 749-775, August.
- Kelly Bedard, . "Human Capital Versus Signaling Models: University Access and High School Drop-outs," Claremont Colleges Working Papers 1999-01, Claremont Colleges.
- David Dranove & Ginger Zhe Jin, 2010.
"Quality Disclosure and Certification: Theory and Practice,"
Journal of Economic Literature,
American Economic Association, vol. 48(4), pages 935-63, December.
- David Dranove & Ginger Zhe Jin, 2010. "Quality Disclosure and Certification: Theory and Practice," NBER Working Papers 15644, National Bureau of Economic Research, Inc.
- Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
- Mario Cleves & William W. Gould & Roberto G. Gutierrez & Yulia Marchenko, 2010. "An Introduction to Survival Analysis Using Stata," Stata Press books, StataCorp LP, edition 3, number saus3, July.
- Emmanuel Farhi & Josh Lerner & Jean Tirole, 2008.
"Fear of Rejection? Tiered Certification and Transparency,"
NBER Working Papers
14457, National Bureau of Economic Research, Inc.
- Farhi, Emmanuel & Lerner, Josh & Tirole, Jean, 2008. "Fear of Rejection? Tiered Certification and Transparency," TSE Working Papers 27725, Toulouse School of Economics (TSE), revised Aug 2013.
- Dan Bernhardt & Murillo Campbello & Edward Kutsoati, 2002.
Discussion Papers Series, Department of Economics, Tufts University
0213, Department of Economics, Tufts University.
- Dellarocas, Chrysanthos, 2003. "The Digitization of Word-of-mouth: Promise and Challenges of Online Feedback Mechanisms," Working papers 4296-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Abhijit V. Banerjee & Esther Duflo, 2000.
"Reputation Effects And The Limits Of Contracting: A Study Of The Indian Software Industry,"
The Quarterly Journal of Economics,
MIT Press, vol. 115(3), pages 989-1017, August.
- Abhijit Banerjee & Esther Duflo, 1999. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," Working papers 99-14, Massachusetts Institute of Technology (MIT), Department of Economics.
- Anandasivam Gopal & Guodong (Gordon) Gao, 2009. "Certification in the Indian Offshore IT Services Industry," Manufacturing & Service Operations Management, INFORMS, vol. 11(3), pages 471-492, December.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010.
"A theory of Fads, Fashion, Custom and cultural change as informational Cascades,"
Levine's Working Paper Archive
1193, David K. Levine.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
- Insuk Cheong & Jeong-Yoo Kim, 2004. "Costly Information Disclosure in Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 121-132, 03.
- Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
- Guodong (Gordon) Gao & Anandasivam Gopal & Ritu Agarwal, 2010. "Contingent Effects of Quality Signaling: Evidence from the Indian Offshore IT Services Industry," Management Science, INFORMS, vol. 56(6), pages 1012-1029, June.
- Andrew F. Daughety & Jennifer F. Reinganum, 2008.
"Communicating quality: a unified model of disclosure and signalling,"
RAND Journal of Economics,
RAND Corporation, vol. 39(4), pages 973-989.
- Andrew F. Daughety & Jennifer F. Reinganum, 2007. "Communicating Quality: A Unified Model of Disclosure and Signaling," Vanderbilt University Department of Economics Working Papers 0703, Vanderbilt University Department of Economics.
- Dan Goldhaber & Emily Anthony, 2007. "Can Teacher Quality Be Effectively Assessed? National Board Certification as a Signal of Effective Teaching," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 134-150, February.
- Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicholas Economides).
If references are entirely missing, you can add them using this form.