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Dynamic Certification and Reputation for Quality

Iván Marinovic, Andrzej Skrzypacz and Felipe Varas

American Economic Journal: Microeconomics, 2018, vol. 10, issue 2, 58-82

Abstract: We study firm's incentives to build and maintain reputation for quality, when quality is persistent and can be certified at a cost. We characterize all reputation-dependent MPEs. They vary in frequency of certification and payoffs. Low payoffs arise in equilibria because of over-certification traps. We contrast the MPEs with the highest payoff equilibria. Industry certification standards can help firms coordinate on such good equilibria. The optimal equilibria allow firms to maintain high quality forever, once it is reached for the first time. They are either lenient or harsh, endowing firms with multiple or one chance to improve and certify quality.

JEL-codes: D21 D43 D83 L13 L15 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/mic.20160282
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Working Paper: Dynamic Certification and Reputation for Quality (2015) Downloads
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