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Fear of rejection? Tiered certification and transparency

Listed author(s):
  • Emmanuel Farhi
  • Josh Lerner
  • Jean Tirole

type="main"> Product quality certifiers may not reveal the identity of unsuccessful applicants/sellers for three reasons. First, they respond to the desire of individual sellers to avoid the stigma from rejection. Second, nontransparency helps a certifier to increase his market power by raising the stigma from lower-tier certification. Third, transparency does not help screen among heterogeneous sellers. Strategic complementarities arise as sellers move down the certification pecking order and lead to the stigmatization of the lower tiers. Mandating transparency benefits the sellers but has an ambiguous impact on buyers, who actually become less informed about product quality.

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File URL: http://hdl.handle.net/10.1111/1756-2171.12033
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Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 44 (2013)
Issue (Month): 4 (December)
Pages: 610-631

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Handle: RePEc:bla:randje:v:44:y:2013:i:4:p:610-631
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  1. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
  2. Lucy White & Alan D. Morrison, 2002. "Crises and Capital Requirements in Banking," OFRC Working Papers Series 2002fe05, Oxford Financial Research Centre.
  3. Josh Lerner & Jean Tirole, 2006. "A Model of Forum Shopping," American Economic Review, American Economic Association, vol. 96(4), pages 1091-1113, September.
  4. Gill, D. & Sgroi, D., 2003. "The Superiority of Tough Reviewers in a Model of Simultaneous Sales," Cambridge Working Papers in Economics 0335, Faculty of Economics, University of Cambridge.
  5. Grinblatt, Mark & Hwang, Chuan Yang, 1989. " Signalling and the Pricing of New Issues," Journal of Finance, American Finance Association, vol. 44(2), pages 393-420, June.
  6. Alan D. Morrison & Lucy White, 2005. "Crises and Capital Requirements in Banking," American Economic Review, American Economic Association, vol. 95(5), pages 1548-1572, December.
  7. Mark J. McCabe & Christopher M. Snyder, 2005. "Open Access and Academic Journal Quality," American Economic Review, American Economic Association, vol. 95(2), pages 453-459, May.
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