Who Should Pay for Certification?
AbstractWho does, and who should initiate costly certification by a third party under asymmetric quality information, the buyer or the seller? Our answer â€” the seller â€” follows from a nonâ€“trivial analysis revealing a clear intuition. Buyerâ€“induced certification acts as an inspection device, whence sellerâ€“induced certification acts as a signalling device. Sellerâ€“induced certification maximizes the certifierâ€™s profit and social welfare. This suggests the general principle that certification is, and should be induced by the better informed party. The results are reflected in a case study from the automotive industry, but apply also to other markets â€“ in particular the financial market.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 323.
Date of creation: Jun 2010
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asymmetric information; certi?cation; information acquisition; inspection; lemons; middlemen; signaling;
Other versions of this item:
- Stahl, Konrad O & Strausz, Roland, 2011. "Who Should Pay for Certification?," CEPR Discussion Papers 8190, C.E.P.R. Discussion Papers.
- Stahl, Konrad & Strausz, Roland, 2011. "Who should pay for certification?," ZEW Discussion Papers 11-054, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Konrad O. Stahl & Roland Strausz, 2011. "Who Should Pay for Certification?," CESifo Working Paper Series 3365, CESifo Group Munich.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-26 (All new papers)
- NEP-CTA-2010-06-26 (Contract Theory & Applications)
- NEP-PPM-2010-06-26 (Project, Program & Portfolio Management)
- NEP-REG-2010-06-26 (Regulation)
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.:
- 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.
- Albano, Gian Luigi & Lizzeri, Alessandro, 2001. "Strategic Certification and Provision of Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 267-83, February.
- Jeon, Doh-Shin & Lovo, Stefano, 2013. "Credit Rating Industry: a Helicopter Tour of Stylized Facts and Recent Theories," IDEI Working Papers 762, Institut d'Économie Industrielle (IDEI), Toulouse.
- Jeon, Doh-Shin & Lovo, Stefano, 2013. "Credit rating industry: A helicopter tour of stylized facts and recent theories," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 643-651.
- Jeon, Doh-Shin & Lovo, Stefano, 2013. "Credit Rating Industry: a Helicopter Tour of Stylized Facts and Recent Theories," TSE Working Papers 13-376, Toulouse School of Economics (TSE).
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