Certification and Market Transparency

Konrad Stahl and Roland Strausz

The Review of Economic Studies, 2017, vol. 84, issue 4, 1842-1868

Abstract: In markets with quality unobservable to buyers, third-party certification is often the only instrument to increase transparency. While both sellers and buyers have a demand for certification, its role differs fundamentally: sellers use it for signalling, buyers use it for inspection. Seller-induced certification leads to more transparency, because it is informative—even if unused. By contrast, buyer-induced certification incentivizes certifiers to limit transparency, as this raises demand for inspection. Whenever transparency is socially beneficial, seller certification is preferable. It also yields certifiers larger profits, so that regulating the mode of certification is redundant.

Keywords: Market transparency; Certification; Information and product quality; Asymmetric information (search for similar items in EconPapers)
JEL-codes: D82 G24 L15 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (29)

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Related works:
Working Paper: Certification and Market Transparency (2017)
Working Paper: Certification and Market Transparency (2014)
Working Paper: Certification and market transparency (2014)
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