Abstract
This paper studies how signaling the credence attributes of consumer goods distorts their market equilibrium in developing countries. Costs of certification, sunk in order to achieve credibility, play a key role in producing an oligopolistic market, leading to high prices that form a barrier for consumers in the South. To lower the cost, certification is better achieved by a single independent body which can be financed either by end consumers, through a fee, or by public subsidies. The paper identifies the conditions under which each funding mechanism is most efficient, taking into account the government's budget constraint. The theoretical analysis is motivated with reference to agricultural seed certification.
Keywords
credence good; quality signaling; certification; developing countries; seeds;
JEL codes
- D11: Consumer Economics: Theory
- D21: Firm Behavior: Theory
- L11: Production, Pricing, and Market Structure • Size Distribution of Firms
- L15: Information and Product Quality • Standardization and Compatibility
Reference
Emmanuelle Auriol, and Steven G.M. Schilizzi, “Quality Signaling through Certification in Developing Countries”, Journal of Development Economics, vol. 116, September 2015, pp. 105–121.
See also
Published in
Journal of Development Economics, vol. 116, September 2015, pp. 105–121