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The Optimal Choice of Pre-launch Reviewer : How Best to Transmit Information using Tests and Conditional Pricing

  • Gill, David

    (University of Southampton)

  • Sgroi, Daniel

    (University of Warwick)

A principal who knows her type can face public testing to help attract endorsements from agents. Tests are pass/fail and have an innate toughness (bias) corresponding to a trade-off between the higher probability of passing a softer test and the greater impact on agents’ beliefs from passing a tougher test. Conditional on the test result, the principal also selects the price of endorsement. The principal always wants to be tested, and chooses the toughest or softest test available depending upon the precision of the agents’ and tests’ information. Applications abound in industrial organization, political economy and labor economics.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_877.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 877.

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Length: 34 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:877
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Judd, Kenneth L & Riordan, Michael H, 1994. "Price and Quality in a New Product Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 773-89, October.
  2. 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.
  3. Chiao, Benjamin & Lerner, Josh & Tirole, Jean, 2006. "The Rules of Standard Setting Organizations: an Empirical Analysis," IDEI Working Papers 388, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Marco Ottaviani & Andrea Prat, 2001. "The Value of Public Information in Monopoly," Econometrica, Econometric Society, vol. 69(6), pages 1673-1683, November.
  5. Ramon Caminal & Xavier Vives, 1999. "Price Dynamics and Consumer Learning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 95-131, 03.
  6. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-27, September.
  7. Emmanuel Farhi & Josh Lerner & Jean Tirole, 2005. "Certifying New Technologies," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 734-744, 04/05.
  8. Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, vol. 39(1), pages 137-166, April.
  9. Bose, Subir & Orosel, Gerhard O & Ottaviani, Marco & Vesterlund, Lise, 2005. "Dynamic Monopoly Pricing and Herding," CEPR Discussion Papers 5003, C.E.P.R. Discussion Papers.
  10. Subir Bose & Gerhard Orosel & Marco Ottaviani & Lise Vesterlund, 2008. "Monopoly pricing in the binary herding model," Economic Theory, Springer, vol. 37(2), pages 203-241, November.
  11. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer.
  12. Josh Lerner & Jean Tirole, 2006. "A Model of Forum Shopping," American Economic Review, American Economic Association, vol. 96(4), pages 1091-1113, September.
  13. Gill, David & Sgroi, Daniel, 2008. "Sequential decisions with tests," Games and Economic Behavior, Elsevier, vol. 63(2), pages 663-678, July.
  14. Philippe Mahenc, 2004. "Influence of Informed Buyers in Markets Susceptible to the Lemons Problem," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 649-659.
  15. Demange, Gabrielle, 2010. "Sharing information in Web communities," Games and Economic Behavior, Elsevier, vol. 68(2), pages 580-601, March.
  16. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
  17. Taylor, Curtis R, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 555-78, July.
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