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Title:Who should pay for certification? PDF Logo
Authors:Stahl, Konrad O.
Strausz, Roland
Issue Date:2011
Series/Report no.:CESifo working paper: Industrial Organisation 3365
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 nontrivial analysis revealing a clear intuition. Buyer-induced certification acts as an inspection device, seller-induced certification 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.
Subjects:asymmetric information
certification
information acquisition
inspection
lemons
middlemen
signaling
JEL:D40
D82
L14
L15
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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