Who Should Pay for Certification?
Who does, and who should initiate costly certification by a third party under asymmetric quality information, the buyer or the seller? Our answer â€” the seller â€” follows from a nonâ€“trivial analysis revealing a clear intuition. Buyerâ€“induced certification acts as an inspection device, whence sellerâ€“induced certification acts as a signalling device. Sellerâ€“induced certification maximizes the certifierâ€™s profit and social welfare. This suggests the general principle that certification is, and should be induced by the better informed party. The results are reflected in a case study from the automotive industry, but apply also to other markets â€“ in particular the financial market.
|Date of creation:||Jun 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.sfbtr15.de/
More information through EDIRC
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.:
- Albano, Gian Luigi & Lizzeri, Alessandro, 2001. "Strategic Certification and Provision of Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 267-83, February.
- Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:323. 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: (Alexandra Frank)
If references are entirely missing, you can add them using this form.