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Certification Disclosure And Informational Efficiency: A Case For Ordered Ranking Of Levels

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Listed:
  • Guerra, G.A.

Abstract

This paper shows that a monopolistic certifying party can have incentives to disclose revealing information about the agent he is certifying. Using a three-person game-theoretic model and allowing certificate users (buyers) to have noisy estimates of the quality level of the agent being certified (seller), a disclosure in the form of ordered ranking of levels is predicted. This contrasts with previous results in certification theory stating that monopolistic certifiers disclose a minimum amount of information (with no informational value) about the party being certified, in order to extract all informational rents from the market. The predicted disclosure is consistent with real life observations of certification disclosure as found in debt rating (notches) and hotels listings (using a discrete system of stars).

Suggested Citation

  • Guerra, G.A., 2001. "Certification Disclosure And Informational Efficiency: A Case For Ordered Ranking Of Levels," Economics Series Working Papers 9964, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:9964
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    Citations

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    Cited by:

    1. Ginger Zhe Jin & Andrew Kato & John A. List, 2010. "That'S News To Me! Information Revelation In Professional Certification Markets," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 104-122, January.
    2. Alexandre Gaudeul & Bruno Jullien, 2005. "E-commerce, two-sided markets and info-mediation," Industrial Organization 0503014, EconWPA, revised 05 Apr 2005.
    3. Alexandre Gaudeul, 2004. "Internet Intermediaries' Editorial Content Quality," Industrial Organization 0409005, EconWPA.
    4. Stephen Noel Broadberry & John Wallis, 2017. "Growing, Shrinking and Long Run Economic Performance: Historical Perspectives on Economic Development," Economics Series Working Papers 154, University of Oxford, Department of Economics.

    More about this item

    Keywords

    MONOPOLIES ; MARKET ; INFORMATION;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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