Quality Certification and Market Transparency with Decentralized Information Management

52 Pages Posted: 7 Mar 2018 Last revised: 4 Jan 2020

See all articles by Jun Aoyagi

Jun Aoyagi

University of California, Berkeley - Department of Economics

Daisuke Adachi

Yale University, Department of Economics, Students

Date Written: February 1, 2018

Abstract

This paper studies how decentralized information management affects asset quality uncertainty and consumer welfare. We show that quality certification improves transparency but has a non-monotonic impact on trading activity and the fee for certification. Thus, when a single agent serves as a centralized quality certifier, she has an incentive to leave the market opaque even if the resolution of uncertainty increases consumer welfare. By contrast, in a decentralized system, record keepers competitively determine the reliability of quality certification. Each record keeper does not incorporate the impact of her monitoring on the general equilibrium transparency, as well as the non-monotonic reaction of the fee revenue. Thus, it may outperform the centralized counterpart in terms of consumer welfare. As a leading example, we apply our discussions to the blockchain economy and derive its implications for the cryptocurrency price and the total hash rate.

Keywords: asymmetric information, quality certification, market transparency, decentralized monitoring, blockchain technology, cryptocurrency

Suggested Citation

Aoyagi, Jun and Adachi, Daisuke, Quality Certification and Market Transparency with Decentralized Information Management (February 1, 2018). Available at SSRN: https://ssrn.com/abstract=3132235 or http://dx.doi.org/10.2139/ssrn.3132235

Jun Aoyagi (Contact Author)

University of California, Berkeley - Department of Economics ( email )

CA
United States

Daisuke Adachi

Yale University, Department of Economics, Students ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
539
Abstract Views
1,642
rank
56,272
PlumX Metrics