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The certifier for the long run

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  • Bizzotto, Jacopo
  • Harstad, Bård

Abstract

We build a workhorse model to study the optimal and the equilibrium certifier from a long-run perspective. Firms enter the market, and invest in their capacity to provide quality, before the certification threshold is determined. With a certifier that cares about quality and externalities (such as an NGO), the threshold is demanding and the firms’ profits are small. Anticipating this, only a few firms enter the market, and they invest heavily. With a certifier mostly concerned with the firms’ profits (such as an industry association), the results are reversed. The relative importance of externalities, investments, and entry determines the socially optimal certifier identity as well as the type of certifier that is most likely to operate in equilibrium. The theory’s predictions are empirically testable and shed light on the variety of certifiers across markets and over time.

Suggested Citation

  • Bizzotto, Jacopo & Harstad, Bård, 2023. "The certifier for the long run," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:indorg:v:87:y:2023:i:c:s0167718723000024
    DOI: 10.1016/j.ijindorg.2023.102920
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    More about this item

    Keywords

    Certification; Delegation; Entry of firms; Investments in quality; Private politics;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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