Uncertain Standards

27 Pages Posted: 4 Dec 2006 Last revised: 13 May 2014

See all articles by Rick Harbaugh

Rick Harbaugh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University - Department of Economics

John W. Maxwell

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University, Department of Economics; Richard Ivey School of Business

Beatrice Roussillon

University of Manchester - Department of Economics; University of Angers - Institute of Economic Theory and Analysis (GATE)

Date Written: September 2008

Abstract

When consumers are unsure of the exact standard that a quality certificate or label represents, they must infer the difficulty of the standard in part from observing which firms adopt the label. Key results from the certification and disclosure literatures are thereby altered. First, consumers are more suspicious of a label if a firm with a bad reputation adopts it, so certification can be less appealing to bad firms than average firms or good firms. Second, as the number of available labels increases, the informativeness of certification decreases rather than increases. Third, adoption of a label by one firm need not increase pressure on other firms to also adopt it. Instead, a label can be either "legitimitized" or "spoiled" for use by other products depending on whether a product with a favorable or unfavorable reputation is certified first. These problems are mitigated if certification is mandatory or if some standards are "focal", even if standards remain uncertain. The model is applied to eco-labels and is also relevant for nutrition labels, academic journals, club memberships, diplomas, and related environments.

Keywords: Eco-labels, disclosure, certification, persuasion, standards

JEL Classification: L15, L21, D82, Q00

Suggested Citation

Harbaugh, Rick and Maxwell, John W. and Roussillon, Beatrice, Uncertain Standards (September 2008). Available at SSRN: https://ssrn.com/abstract=948538 or http://dx.doi.org/10.2139/ssrn.948538

Rick Harbaugh (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-2777 (Phone)
812-855-3354 (Fax)

HOME PAGE: http://www.bus.indiana.edu/riharbau/

Indiana University - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

John W. Maxwell

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Department of Business Economics and Public Policy
Kelley School of Business, Indiana University
Bloomington, IN 47405
United States
812-855 9219 (Phone)
812-855 3354 (Fax)

HOME PAGE: http://johnwmaxwell.com

Indiana University, Department of Economics ( email )

Wiley Hall
Bloomington, IN
United States

Richard Ivey School of Business ( email )

The University of Western Ontario
1151 Richmond Street North
London, Ontario N6A3K7
Canada
5198502439 (Phone)
5198502306 (Fax)

Beatrice Roussillon

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

University of Angers - Institute of Economic Theory and Analysis (GATE) ( email )

93, chemin des Mouilles
Monnaie et Finance at Lyon
69130 Ecully cedex
France

Register to save articles to
your library

Register

Paper statistics

Downloads
137
rank
205,645
Abstract Views
988
PlumX Metrics