Arbeitspapier
Welfare effects of certification under latent adverse selection
Asymmetric information is a classic example of market failure that undermines the efficiency associated with perfectly competitive market outcomes: the "lemons" market. Credible certification, that substantiates unobservable characteristics of products that consumers value, is often considered a potential solution to such market failure. This paper examines welfare effects of certification in markets in which there is asymmetric information, but without an adverse selection problem. We analyze the market equilibrium when the certification technology becomes available and contrast this with the equilibrium without certification. We find that despite an improvement in allocative efficiency, overall welfare may decrease due to the possibility of certification when such certification is either costly or inaccurate. In fact, most of these results are not derived from the direct welfare cost of certification, but rather from certification's effect on the market(s).
- ISBN
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978-3-86304-311-7
- Language
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Englisch
- Bibliographic citation
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Series: DICE Discussion Paper ; No. 312
- Classification
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Wirtschaft
- Subject
-
credible certification
welfare-reducing certification
asymmetric information
adverse selection
- Event
-
Geistige Schöpfung
- (who)
-
Creane, Anthony
Jeitschko, Thomas D.
Sim, Kyoungbo
- Event
-
Veröffentlichung
- (who)
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Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)
- (where)
-
Düsseldorf
- (when)
-
2019
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Creane, Anthony
- Jeitschko, Thomas D.
- Sim, Kyoungbo
- Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)
Time of origin
- 2019
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