The Choice of Certifier in Endogenous Markets

47 Pages Posted: 2 Dec 2020

See all articles by Jacopo Bizzotto

Jacopo Bizzotto

Oslo Business School - OsloMet

Bård Harstad

University of Oslo - Department of Economics

Date Written: November 2020

Abstract

For markets to work, buyers must know when products are of high quality. This paper provides a theoretical framework for studying the consequences of the certifier's identity, the characteristics of the best certifier, and the identity of the equilibrium certifier. A certifier that cares about quality and externalities (such as an NGO) motivates firms to invest in their capacities to provide quality; a certifier concerned with the firms' profits (such as an industry association) motivates more firms to enter the market in the first place. The relative importance of externalities, investments, and entry determines the socially optimal certification authority but also the type of certifier that is most likely to enter in equilibrium. The theory's predictions are empirically testable and shed light on the variety of certifiers across markets and over time.

Keywords: Certification, delegation, entry of firms, investments in quality, private politics

JEL Classification: G24, L15, L31

Suggested Citation

Bizzotto, Jacopo and Harstad, Bard, The Choice of Certifier in Endogenous Markets (November 2020). Available at SSRN: https://ssrn.com/abstract=3730508 or http://dx.doi.org/10.2139/ssrn.3730508

Jacopo Bizzotto (Contact Author)

Oslo Business School - OsloMet ( email )

Pilestredet 35
Oslo, 0166
Norway

Bard Harstad

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

HOME PAGE: http://www.sv.uio.no/econ/english/people/aca/bardh/

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