Certification Disclosure and Informational Efficiency: A Case for Ordered Ranking of Levels
AbstractThis paper shows that a monopolistic certifying party can have incentives to disclose revealing information about the agent he is certifying. Using a three-person game-theoretic model and allowing certificate users (buyers) to have noisy estimates of the quality level of the agent being certified (seller), a disclosure in the form of ordered ranking of levels is predicted. This contrasts with previous results in certification theory stating that monopolistic certifiers disclose a minimum amount of information (with no informational value) about the party being certified, in order to extract all informational rents from the market. The predicted disclosure is consistent with real life observations of certification disclosure as found in debt rating (notches) and hotels listings (using a discrete system of stars). The model is robust enough to explain the results of previous models. The paper also adds to the existing literature an evaluation of four different strategies of information disclosure that are available to a certifier.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 64.
Date of creation: 01 Jan 2001
Date of revision:
certification; information asymmetry; disclosure strategies;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- 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
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- Ginger Zhe Jin & Andrew Kato & John A. List, 2010.
"That'S News To Me! Information Revelation In Professional Certification Markets,"
Western Economic Association International, vol. 48(1), pages 104-122, 01.
- Ginger Zhe Jin & Andrew Kato & John A. List, 2006. "That's News to Me! Information Revelation in Professional Certification Markets," NBER Working Papers 12390, National Bureau of Economic Research, Inc.
- Ginger Jin & Andrew Kato & John List, 2010. "That's news to me! information revelation in professional certification markets," Framed Field Experiments 00162, The Field Experiments Website.
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