Certification and market transparency

Konrad Stahl and Roland Strausz

No 2014-041, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: We provide elementary insights into the effectiveness of certification to increase market transparency. In a market with opaque product quality, sellers use certification as a signaling device, while buyers use it as an inspection device. This difference alone implies that seller-certification yields more transparency and higher social welfare. Under buyer-certification profit maximizing certifiers further limit transparency, but because seller-certification yields larger profits, active regulation concerning the mode of certification is not needed. These findings are robust and widely applicable to, for instance, patents, automotive parts, and financial products.

Keywords: Market Transparency; Certification; Information and Product Quality; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: D82 G24 L15 (search for similar items in EconPapers)
Date: 2014
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https://www.econstor.eu/bitstream/10419/103806/1/796717117.pdf (application/pdf)

Related works:
Journal Article: Certification and Market Transparency (2017)
Working Paper: Certification and Market Transparency (2017)
Working Paper: Certification and Market Transparency (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2014-041

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