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Reputation on a credence good market: an economic analysis of professional self-regulation

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  • Camille Chaserant
  • Sophie Harnay

Abstract

This article provides a rationalization of (at least partial) professional self-regulation resting on the joint production of individual and collective reputations and its impact on the quality of professional services. It presents a short model that aims to show that (i) a high-quality steady-state exists in a market for a credence goods and that (ii) the likelihood of high quality increases when the market is self-regulated by the profession in comparison to the situation where there is no self-regulation. The law and economics literature usually criticizes self-regulation as a modern form of corporatism; we show that it may help to regulate quality when clients are faced with opportunistic professionals.

Suggested Citation

  • Camille Chaserant & Sophie Harnay, 2011. "Reputation on a credence good market: an economic analysis of professional self-regulation," EconomiX Working Papers 2011-32, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2011-32
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    References listed on IDEAS

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    1. W. Bentley MacLeod, 2007. "Reputations, Relationships, and Contract Enforcement," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 595-628, September.
    2. Nunez, Javier, 2001. "A model of self-regulation," Economics Letters, Elsevier, vol. 74(1), pages 91-97, December.
    3. Gehrig, Thomas & Jost, Peter-J, 1995. "Quacks, Lemons, and Self Regulation: A Welfare Analysis," Journal of Regulatory Economics, Springer, vol. 7(3), pages 309-325, May.
    4. James C. Miller III, 1985. "The FTC and Voluntary Standards: Maximizing the Net Benefits of Self-Regulation," Cato Journal, Cato Journal, Cato Institute, vol. 4(3), pages 897-903, Winter.
    5. Van Den Bergh, Roger & Faure, Michael, 1991. "Self-regulation of the professions in Belgium," International Review of Law and Economics, Elsevier, vol. 11(2), pages 165-182, September.
    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.
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    Cited by:

    1. Camille Chaserant & Sophie Harnay, 2013. "The regulation of quality in the market for legal services: Taking the heterogeneity of legal services seriously," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 10(2), pages 267-291, August.
    2. Kolesnik, Georgiy, 2015. "Modelling "race to the bottom" effect on the self-regulated markets," MPRA Paper 64138, University Library of Munich, Germany.
    3. Bendikov, Mikhail & Kolesnik, Georgiy, 2013. "Конкуренция Саморегулируемых Организаций И Эффективность Рынков [Self-regulatory organizations competition and the market efficiency]," MPRA Paper 47812, University Library of Munich, Germany.

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    More about this item

    Keywords

    professional services; credence goods; self-regulation; individual reputation; collective reputation;
    All these keywords.

    JEL classification:

    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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