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Quacks, Lemons, and Self Regulation: A Welfare Analysis

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  • Gehrig, Thomas
  • Jost, Peter-J

Abstract

This paper provides a framework in which suppliers of experience goods may find it in their best interests to provide, and enforce, quality standards. The incentives to form self-regulatory organizations are inversely related to ex-ante monitoring costs of the organization, as well as the number of members. This self-regulatory outcome is compared to statutory price and quality regulation. Without informational asymmetries between market participants and the social planer, self-regulatory outcomes can always be replicated by statutory regulation. Even with asymmetric information, self regulation is socially desirable only if the regulator values firm's profits sufficiently highly. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Gehrig, Thomas & Jost, Peter-J, 1995. "Quacks, Lemons, and Self Regulation: A Welfare Analysis," Journal of Regulatory Economics, Springer, vol. 7(3), pages 309-325, May.
    • Handle: RePEc:kap:regeco:v:7:y:1995:i:3:p:309-25
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    1. Russell Cooper & Thomas W. Ross, 1985. "Product Warranties and Double Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 103-113, Spring.
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