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Title:Two-sided certification: The market for rating agencies PDF Logo
Authors:Fasten, Erik R.
Hofmann, Dirk
Issue Date:2010
Series/Report no.:SFB 649 discussion paper 2010,007
Abstract:Certifiers contribute to the sound functioning of markets by reducing asymmetric information. They, however, have been heavily criticized during the 2008-09 financial crisis. This paper investigates on which side of the market a monopolistic profit-maximizing certifier offers his service. If the seller demands a rating, the certifier announces the product quality publicly, whereas if the buyer requests a rating it remains his private information. The model shows that the certifier offers his service to sellers and buyers to maximize his own profit with a higher share from the sellers. Overall, certifiers increase welfare in specific markets. Revenue shifts due to the financial crisis are also explained.
Subjects:Certification
Rating Agencies
Asymmetric Information
Financial Markets
JEL:G14
G24
L15
D82
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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