 On the effect of aggregate uncertainty on certification intermediaries’ incentives to distort ratingsPetra Loerke and Andras Niedermayer European Economic Review, 2018, vol. 108, issue C, 20-48 Abstract: We analyze a certification intermediary’s incentives to distort ratings in a model with a monopolistic profit maximizing certification intermediary, a continuum of heterogeneous sellers, and a competitive market of risk-neutral buyers. The value of a seller’s good is known to the seller and observable by the certifier, but not by buyers. Sellers can choose to get a rating. The certification intermediary can reveal a signal of arbitrary precision about the quality of the good. In contrast to the existing literature, we allow aggregate uncertainty. As in the existing literature, one rating class is optimal. However, the certification intermediary does not generally choose a socially optimal cutoff: the certifier is more likelyto be too lenient if the distribution of aggregate uncertainty has a lower mean, a higher variance, and is more left skewed. It is more likely to be too strict if the opposite holds. Keywords: Certification intermediaries; Rating agencies; Aggregate uncertainty; Financial crisis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:108:y:2018:i:c:p:20-48 DOI: 10.1016/j.euroecorev.2018.05.005 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.