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Incentives for Quality in Friendly and Hostile Informational Environments

Pierre Fleckinger, Matthieu Glachant () and Gabrielle Moineville

American Economic Journal: Microeconomics, 2017, vol. 9, issue 1, 242-74

Abstract: We develop a model of costly quality provision under biased disclosure. We define as friendly an environment in which the disclosure probability increases with quality, and as hostile an environment in which the opposite holds. Hostile environments produce a positive externality among sellers and potentially multiple equilibria. In contrast, friendly environments always yield a unique equilibrium. We establish that the environment that maximizes quality generates signals contradicting buyers' expectations. Hence, hostility produces greater incentives for quality than friendliness when costs are low and monitoring resources high.

JEL-codes: D82 L15 L82 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/mic.20150119
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Handle: RePEc:aea:aejmic:v:9:y:2017:i:1:p:242-74