The Choice of Certifier in Endogenous Markets

Jacopo Bizzotto and Bard Harstad

Working Papers from Oslo Metropolitan University, Oslo Business School

Abstract: For markets to work, buyers must know when products are of high quality. This paper provides a theoretical framework for studying the consequences of the certifier's identity, the characteristics of the best certifier, and the identity of the equilibrium certifier. A certifier that cares about quality and externalities (such as an NGO) motivates firms to invest in their capacities to provide quality; a certifier concerned with the firms' profits (such as an industry association) motivates more firms to enter the market in the first place. The relative importance of externalities, investments, and entry determines the socially optimal certification authority but also the type of certifier that is most likely to enter in equilibrium. The theory's predictions are empirically testable and shed light on the variety of certifiers across markets and over time.

Keywords: Certification; delegation; entry of firms; investments in quality; private politics (search for similar items in EconPapers)
JEL-codes: G24 L15 L31 (search for similar items in EconPapers)
Date: 2020-11
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Persistent link: https://EconPapers.repec.org/RePEc:oml:wpaper:202102

DOI: 10.2139/ssrn.3730508

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