IDEAS home Printed from https://ideas.repec.org/p/cer/papers/wp364.html
   My bibliography  Save this paper

How to Price Imperfect Certification

Author

Listed:
  • Jan Myslivecek

Abstract

This paper analyzes markets in which consumers do not directly observe the quality of the products but form their expectations about the quality based on the outcome of voluntary imperfect certification. I analyze how the certification fee impacts the decisions of the producers to apply for a certificate and whether to supply goods of required quality. I find that there are both separating (only high quality producers apply and obtain the certificate) and pooling (both high and low-quality producers apply and obtain) equilibria. I show that the pooling equilibrium exists when the certification fee is low, while the separating equilibrium requires high certification fees. Since the pooling equilibrium is not welfare optimal, excessive competition between certifiers, which lowers the certification fee, is not beneficial. This result complements Strausz (2005) who shows that high certification fees are required to prevent the corruption of the certifier.

Suggested Citation

  • Jan Myslivecek, 2008. "How to Price Imperfect Certification," CERGE-EI Working Papers wp364, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp364
    as

    Download full text from publisher

    File URL: http://www.cerge-ei.cz/pdf/wp/Wp364.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Strausz, Roland, 2005. "Honest certification and the threat of capture," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 45-62, February.
    2. Ira N. Gang & Gil S. Epstein, 2002. "The Political Economy Of Kosher Wars," Departmental Working Papers 200227, Rutgers University, Department of Economics.
    3. L. A. Franzoni, 1998. "Imperfect competition in certification markets," Working Papers 338, Dipartimento Scienze Economiche, Universita' di Bologna.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Certification; Imperfect Testing; Competition; Adverse Selection;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cer:papers:wp364. 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: (Jana Koudelkova). General contact details of provider: http://edirc.repec.org/data/eiacacz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.