Certification and Market Transparency

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URL:	https://ub-madoc.bib.uni-mannheim.de/37276
URN:	urn:nbn:de:bsz:180-madoc-372764
Document Type:	Working paper
Year of publication:	2014
The title of a journal, publication series:	Working Paper Series
Volume:	14-26
Place of publication:	Mannheim
Publication language:	English
Institution:	School of Law and Economics > VWL, Mikroökonomik (Stahl Em)
MADOC publication series:	Department of Economics > Working Paper Series
Subject:	330 Economics
Classification:	JEL: D82 , G24 , L15,
Keywords (English):	Market Transparency , Certification , Information and Product Quality , Asymmetric Information
Abstract:	We provide elementary insights into the effectiveness of certification to increase market transparency. In a market with opaque product quality, sellers use certification as a signaling device, while buyers use it as an inspection device. This difference alone implies that seller-certification yields more transparency and higher social welfare. Under buyer-certification profit maximizing certifiers further limit transparency, but because seller-certification yields larger profits, active regulation concerning the mode of certification is not needed. These findings are robust and widely applicable to, for instance, patents, automotive parts, and financial products.