Fear of rejection? Tiered certification and transparency

Emmanuel Farhi, Josh Lerner, Jean Tirole

Research output: Contribution to journalArticle

18 Scopus citations

Abstract

Product quality certifiers may not reveal the identity of unsuccessful applicants/sellers for three reasons. First, they respond to the desire of individual sellers to avoid the stigma from rejection. Second, nontransparency helps a certifier to increase his market power by raising the stigma from lower-tier certification. Third, transparency does not help screen among heterogeneous sellers. Strategic complementarities arise as sellers move down the certification pecking order and lead to the stigmatization of the lower tiers. Mandating transparency benefits the sellers but has an ambiguous impact on buyers, who actually become less informed about product quality.

Original languageEnglish (US)
Pages (from-to)610-631
Number of pages22
JournalRAND Journal of Economics
Volume44
Issue number4
DOIs
StatePublished - Dec 1 2013

ASJC Scopus subject areas

  • Economics and Econometrics

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