Certification Design With Common Values
Econometrica · 2024 · Volume 92 · Issue 3
Abstract
This paper studies certification design and its implications for information disclosure. Our model features a profit-maximizing certifier and the seller of a good of unknown quality. We allow for common values as the seller's opportunity cost may depend on the quality of the good. We compare certifier-optimal with transparency-maximizing certification design. Certifier-optimal certification design implements the evidence structure of Dye (1985)—a fraction of sellers acquire information while the remaining sellers are uninformed—and results in partial disclosure to the market. A transparency-maximizing regulator prefers a less precise signal, which conveys more information to the market through a higher rate of certification and unraveling (Grossman (1981), Milgrom (1981)) at the disclosure stage.
Keywords
Disclosure, certification, strategic information transmission, information design
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