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Who Should Pay for Certification?

Konrad Stahl and Roland Strausz

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

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; certi?cation; 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: 2010-06
New Economics Papers: this item is included in nep-cta, nep-ppm and nep-reg
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Citations: View citations in EconPapers (8)

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https://epub.ub.uni-muenchen.de/13231/1/323.pdf (application/pdf)

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