Certification and Market Transparency


Stahl, Konrad ; Strausz, Roland


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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 K.1988-2009, 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.




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