The Appeal of Third-party Certifications: Information Unraveling in Natural Experiments

Mingfeng Lin () and Paulo Goes ()
Additional contact information
Mingfeng Lin: Department of Management Information Systems, University of Arizona
Paulo Goes: Department of Management Information Systems, University of Arizona

No 12-02, Working Papers from NET Institute

Abstract: Despite the abundance of studies on consequences of certification, there is little empirical research on what motivates sellers to attempt certifications in the first place. One of the most intriguing theoretical predictions is the “information unraveling” proposition, which predicts a “domino- effect” in sellers’ certification-seeking behavior when a certification opportunity arises. To test this proposition, and to further identify factors that motivate sellers to seek certifications, we exploit two unique natural experiments and detailed transaction data on a global online labor market. The first natural experiment was the introduction of certifications into the market, with a fee; and the second occurred when certification exams were made free. We derive and test hypotheses on factors that motivate sellers to seek certifications, including word-of-mouth, repeat customers, cost of certification, and informational cascading. We also find that, contrary to theoretical predictions, certification status negatively impacts some sellers’ ability to obtain contracts. These findings have important managerial as well as academic implications.

Keywords: third-party certification; quality disclosure; information asymmetry; signaling; information unraveling; cascading; online labor markets; online outsourcing (search for similar items in EconPapers)
JEL-codes: J01 L15 L86 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2012-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.netinst.org/Lin_12-02.pdf (application/pdf)
no

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:1202

Access Statistics for this paper

More papers in Working Papers from NET Institute
Bibliographic data for series maintained by Nicholas Economides ().