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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/46330
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| Title: | | Who should pay for certification?  |
| 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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