Imprecise information disclosure and truthful certification |
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| Affiliation: | 1. Department of Economics, University of Catania, Corso Italia 55, Catania 95129, Italy;2. Department of Economics and Related Studies, University of York, Heslington, York YO10 5DD, UK;3. Department of Economics/NIPE, University of Minho, Campus de Gualtar, Braga 4710-057, Portugal;4. Department of Economics, University of Bergen, Norway;1. Stockholm University, 106 91 Stockholm, Sweden, and Research Institute of Industrial Economics, Box 55665, 112 15 Stockholm, Sweden;2. Saïd Business School, University of Oxford, Park End Street, Oxford OX1 1HP, UK |
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| Abstract: | This article studies the interaction of information disclosure and reputational concerns in certification markets. We argue that by revealing information less precisely, a certifier reduces the threat of capture because this reduces her gains from selling fraudulent certificates. As a result, only imprecise disclosure rules are implementable for intermediate discount factors. Our results therefore suggest that contrary to the common view, imprecise disclosure may be socially desirable. Regulatory intervention may provoke market failure especially in industries where certifier reputational rents are low. |
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| Keywords: | Certification Information disclosure Bribery |
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