Incentives for Quality in Friendly and Hostile Informational Environments

Pierre Fleckinger (), Matthieu Glachant and Gabrielle Moineville ()
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Gabrielle Moineville: CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique

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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.

Date: 2017-02
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Published in American Economic Journal: Microeconomics, 2017, 9 (1), pp.242-274. ⟨10.1257/mic.20150119⟩

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Journal Article: Incentives for Quality in Friendly and Hostile Informational Environments (2017)
Working Paper: Incentives for Quality in Friendly and Hostile Informational Environments (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01693887

DOI: 10.1257/mic.20150119

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