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Certification as a Viable Quality Assurance Mechanism: Theory and Suggestive Evidence

Author

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  • Katarina Svitkova
  • Andreas Ortmann

Abstract

In this paper we address an asymmetric information problem in the fundraising industry, the fundraising problem. The problem arises from donors’ lack of information about the quality of charities that solicit donations. We focus on one particular solution of this problem, certification, where an independent agency provides a costly signal, a certificate, to charities that can use it to signal their ‘high’ quality. Our model is a signaling game involving three types of player: donors, charities and a certifier. We compare the decisions and impact of two types of certifier: one profit maximizing and one nonprofit. The assumptions of our model are derived from stylized facts that we distilled from certification systems currently existing in the fundraising industries of some European countries. While the current manuscript is meant to inform the real-world design and implementation of such a system in the Czech Republic and other transition economies, our work complements the literature on certification and provides results that are different from those reported up to now.

Suggested Citation

  • 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.
  • Handle: RePEc:cer:papers:wp288
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp288.pdf
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    References listed on IDEAS

    as
    1. Nunez, Javier, 2001. "A model of self-regulation," Economics Letters, Elsevier, vol. 74(1), pages 91-97, December.
    2. Lucia Quesada & Eloic Peyrache, 2003. "Monopoly intermediary and information transmission," Industrial Organization 0304005, EconWPA.
    3. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    4. Strausz, Roland, 2005. "Honest certification and the threat of capture," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 45-62, February.
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    Cited by:

    1. 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.

    More about this item

    Keywords

    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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