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Quality Testing and Disclosure


  • Steven Matthews
  • Andrew Postlewaite


Sellers are often more able than consumers to test product quality. We show that whether such firms will voluntarily test quality and disclose what they learn depends in a paradoxical way upon the presence of mandatory disclosure rules: only if disclosure is mandatory will a seller not test and disclose. We than ask whether it is even desirable for consumers to be informed about the quality at the time they purchase. We show that if information about product quality can be obtained only after production decisions have been made, and if income effects are negligible, then consumers and firms will agree that a regime in which consumers are uninformed (informed) is preferable to a regime in which they are informed (uninformed) if income and quality are complements (substitutes) in utility. Consumers and firms can disagree -- in either way -- about which regime is better if income effects are not negligible. We conclude by discussing the desirability of mandatory testing laws.

Suggested Citation

  • Steven Matthews & Andrew Postlewaite, 1985. "Quality Testing and Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 328-340, Autumn.
  • Handle: RePEc:rje:randje:v:16:y:1985:i:autumn:p:328-340

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    References listed on IDEAS

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    7. William W. Sharkey, 1981. "Existence of Sustainable Prices for Natural Monopoly Outputs," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 144-154, Spring.
    8. Faulhaber, Gerald R & Levinson, Stephen B, 1981. "Subsidy-Free Prices and Anonymous Equity [Cross-Subsidization: Pricing in Public Enterprises]," American Economic Review, American Economic Association, vol. 71(5), pages 1083-1091, December.
    9. Baumol, William J & Bailey, Elizabeth E & Willig, Robert D, 1977. "Weak Invisible Hand Theorems on the Sustainability of Multiproduct Natural Monopoly," American Economic Review, American Economic Association, vol. 67(3), pages 350-365, June.
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