Who Should Pay for Certification?

Konrad Stahl and Roland Strausz

No 8190, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Who does, and who should initiate costly certification by a third party under asymmetric quality information, the buyer or the seller? Our answer --- the seller --- follows from a non--trivial analysis revealing a clear intuition. Buyer--induced certification acts as an inspection device, whence seller--induced certification acts as a signalling device. Seller--induced certification maximizes the certifier's profit and social welfare. This suggests the general principle that certification is, and should be induced by the better informed party. The results are reflected in a case study from the automotive industry, but apply also to other markets -- in particular the financial market.

Keywords: Asymmetric information; Certification; Information acquisition; Inspection; Lemons; Middlemen; Signaling (search for similar items in EconPapers)
JEL-codes: D40 D82 L14 L15 (search for similar items in EconPapers)
Date: 2011-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Who Should Pay for Certification? (2011)
Working Paper: Who should pay for certification? (2011)
Working Paper: Who Should Pay for Certification? (2010)
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