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Certification as a Viable Quality Assurance Mechanism in Transition Economies: Evidence, Theory, and Open Questions

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  • Andreas Ortmann
  • Katarína Svítková

Abstract

Traditionally, enforcement of consumer protection laws meant to provide quality assurance of goods and services was considered a responsibility of the state in its various guises. Unfortunately, enforcement is an expensive, and hence particularly problematic proposition in transition economies that have many competing demands on their very scarce resources. An alternative mode of enforcement is through reputation. Yet for reputation to be able to fulfill this disciplining role, a high degree of information flow, or transparency, is imperative. Transparency, of course, is not something that transition economies typically excel in. In this article we discuss a third form of enforcement that relies much less, or not at all, on the state, and that relies on the market only indirectly: Certification agencies force their members to reveal their (good) type through costly signals that can be "engineered" to induce a separating equilibrium. We discuss the viability of this system of enforcement in an environment (namely, fundraising) where state and market have failed to deliver a satisfying degree of quality assurance.

Suggested Citation

  • 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.
  • Handle: RePEc:prg:jnlpep:v:2007:y:2007:i:2:id:300:p:99-114
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    References listed on IDEAS

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    1. Roland, Gerard & Verdier, Thierry, 2003. "Law enforcement and transition," European Economic Review, Elsevier, vol. 47(4), pages 669-685, August.
    2. Geoffrey Heal, 1976. "Do Bad Products Drive Out Good?," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 499-502.
    3. Terlaak, Ann & King, Andrew A., 2006. "The effect of certification with the ISO 9000 Quality Management Standard: A signaling approach," Journal of Economic Behavior & Organization, Elsevier, vol. 60(4), pages 579-602, August.
    4. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer.
    5. Strausz, Roland, 2005. "Honest certification and the threat of capture," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 45-62, February.
    6. 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.
    7. Nunez, Javier, 2001. "A model of self-regulation," Economics Letters, Elsevier, vol. 74(1), pages 91-97, December.
    8. Katarina Svitkova & Andreas Ortmann, 2006. "Certification as a Viable Quality Assurance Mechanism: Theory and Suggestive Evidence," CERGE-EI Working Papers wp288, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    9. Biglaiser, Gary & Friedman, James W., 1994. "Middlemen as guarantors of quality," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 509-531, December.
    10. Ortmann, Andreas & Squire, Richard, 2000. "A game-theoretic explanation of the administrative lattice in institutions of higher learning," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 377-391, November.
    11. Andreas Ortmann, 2001. "Capital Romance: Why Wall Street Fell in Love With Higher Education," Education Economics, Taylor & Francis Journals, vol. 9(3), pages 293-311.
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    Citations

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    Cited by:

    1. Mary Gugerty, 2009. "Signaling virtue: voluntary accountability programs among nonprofit organizations," Policy Sciences, Springer;Society of Policy Sciences, vol. 42(3), pages 243-273, August.

    More about this item

    Keywords

    transition economies; experience goods; quality assurance; certification; self-regulation; enforcement;

    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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