Verification In Contracts With Random Changes In Quality
Many goods and services are subject to random changes in quality during the time between sale and delivery, resulting in markets characterized by lemons-market equilibria. We examine two forms of costly verification, ex post inspection and ex ante certification. In equilibrium, ex post verification is used to verify buyers' reports of low quality, while ex ante certification is used to verify sellers' shipments of high quality. Ex post inspection allows buyers to earn rents; in some circumstances, ex ante certification allows sellers to earn rents. One would expect buyers to prefer ex post inspection while sellers prefer ex ante certification.
|Date of creation:||2000|
|Contact details of provider:|| Phone: 301-405-1290|
Web page: http://www.arec.umd.edu/
More information through EDIRC
References listed on IDEAS
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.:
- De, Sankar & Nabar, Prafulla, 1991. "Economic implications of imperfect quality certification," Economics Letters, Elsevier, vol. 37(4), pages 333-337, December.
- Robert M. Townsend, 1979.
"Optimal contracts and competitive markets with costly state verification,"
45, Federal Reserve Bank of Minneapolis.
- Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
- Chongwoo Choe, 1995.
"Contract Design and Costly Verification Games,"
1995.18, School of Economics, La Trobe University.
- Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
- Mason, Charles F & Sterbenz, Frederic P, 1994. "Imperfect Product Testing and Market Size," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 61-86, February.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
When requesting a correction, please mention this item's handle: RePEc:ags:umdrwp:28565. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.