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DeMarzo, Peter M., Kremer, Ilan and Skrzypacz, Andrzej (2019) Test design and minimum standards. American Economic Review, 109 (6). pp. 2173-2207. doi:10.1257/aer.20171722 ISSN 0002-8282.
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Official URL: https://doi.org/10.1257/aer.20171722
Abstract
We analyze test design and certification standards when an uninformed seller has the option to generate and disclose costly information regarding asset quality. We characterize equilibria by a minimum principle: the test and disclosure policy are chosen to minimize the asset’s value conditional on nondisclosure. Thus, when sellers choose the information provided, simple pass/fail certification tests are likely to dominate the market. A social planner could raise informational and allocative efficiency, and lower deadweight testing costs, by raising the certification standard. Monopolist certifiers also satisfy the minimum principle but set a higher standard and reduce testing rates to maximize revenue.
| Item Type: | Journal Article | ||||||
|---|---|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HB Economic Theory | ||||||
| Divisions: | Faculty of Social Sciences > Economics | ||||||
| Library of Congress Subject Headings (LCSH): | Game theory, Equilibrium (Economics) | ||||||
| Journal or Publication Title: | American Economic Review | ||||||
| Publisher: | American Economic Association | ||||||
| ISSN: | 0002-8282 | ||||||
| Official Date: | June 2019 | ||||||
| Dates: |
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| Volume: | 109 | ||||||
| Number: | 6 | ||||||
| Page Range: | pp. 2173-2207 | ||||||
| DOI: | 10.1257/aer.20171722 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Reuse Statement (publisher, data, author rights): | Copyright © 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018 by the American Economic Association. Permission to make digital or hard copies of part or all of American Economic Association publications for personal or classroom use is granted without fee provided that copies are not distributed for profit or direct commercial advantage and that copies show this notice on the first page or initial screen of a display along with the full citation, including the name of the author. Copyrights for components of this work owned by others than AEA must be honored. Abstracting with credit is permitted. The author has the right to republish, post on servers, redistribute to lists and use any component of this work in other works. For others to do so requires prior specific permission and/or a fee. Permissions may be requested from the American Economic Association Administrative Office by going to the Contact Us form and choosing "Copyright/Permissions Request" from the menu. Copyright © 2018 AEA | ||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||
| Copyright Holders: | AEA | ||||||
| Date of first compliant deposit: | 8 October 2018 | ||||||
| Date of first compliant Open Access: | 8 October 2018 |
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