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Strategic Certification and Provision of Quality

Strategic Certification and Provision of Quality We study the effect of the presence of a certification intermediary in an environment where information asymmetries are particularly severe. The intermediary improves the information that buyers have about quality. This in turn increases the incentives that the seller has to provide high‐quality goods. Efficiency is increased by the presence of the intermediary, but quality is underprovided in equilibrium relative to full information. The intermediary can implement the optimal policy in many ways. The amount of information revealed ranges from full disclosure to partial, noisy disclosure. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Economic Review Wiley

Strategic Certification and Provision of Quality

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Publisher
Wiley
Copyright
Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
ISSN
0020-6598
eISSN
1468-2354
DOI
10.1111/1468-2354.00110
Publisher site
See Article on Publisher Site

Abstract

We study the effect of the presence of a certification intermediary in an environment where information asymmetries are particularly severe. The intermediary improves the information that buyers have about quality. This in turn increases the incentives that the seller has to provide high‐quality goods. Efficiency is increased by the presence of the intermediary, but quality is underprovided in equilibrium relative to full information. The intermediary can implement the optimal policy in many ways. The amount of information revealed ranges from full disclosure to partial, noisy disclosure.

Journal

International Economic ReviewWiley

Published: Feb 1, 2001

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