Dynamic Certification and Reputation for Quality
Andrzej Skrzypacz and
Additional contact information
Ivan Marinovic: Stanford University
Felipe Varas: Duke University
Research Papers from Stanford University, Graduate School of Business
We study firm's incentives to invest and build reputation for quality, when quality can be certified at a cost. We consider two types of equilibria: one in which certification decisions are made based on firm's reputation and the second in which they are made based on the time since last certification. We show that reputation-based certification has a very limited effect on incentives to invest in quality, so that in equilibrium the firm invests only its reputation is the lowest. We also show that the firm in this case suffers from an over-certification trap in which the benefits of reputation are dissipated by excessive certification. These problems can be avoided with time-based certification, which can allow first-best investment in quality for sufficiently small certification cost, despite investment being unobservable. We also show that the optimal certification duration results in the firm certifying when its reputation is high.
JEL-codes: C73 D82 D83 D84 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mic
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Journal Article: Dynamic Certification and Reputation for Quality (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3371
Access Statistics for this paper
More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().