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An Empirical Examination of Quality Certification in a "Lemons Market"

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  • Bradley S. Wimmer
  • Brian Chezum

Abstract

This article examines the effect third-party certification has on a market characterized by adverse selection. Using an original data set from the market for young thoroughbreds, we show that certification alleviates problems of adverse selection by examining the effect certification has on breeder decisions to retain or sell horses and the effect these decisions have on observed prices. Data on the racetrack performance of the horses confirm the results. Copyright 2003, Oxford University Press.

Suggested Citation

  • Bradley S. Wimmer & Brian Chezum, 2003. "An Empirical Examination of Quality Certification in a "Lemons Market"," Economic Inquiry, Western Economic Association International, vol. 41(2), pages 279-291, April.
    • Handle: RePEc:oup:ecinqu:v:41:y:2003:i:2:p:279-291
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    File URL: http://hdl.handle.net/10.1093/ei/cbg007
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    Cited by:

    1. Ginger Zhe Jin & Andrew Kato & John A. List, 2010. "That’S News To Me! Information Revelation In Professional Certification Markets," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 104-122, January.
    2. Daniel W. Elfenbein & Raymond Fisman & Brian McManus, 2015. "Market Structure, Reputation, and the Value of Quality Certification," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 83-108, November.
    3. Glenn Boyle & Gerald Ward, 2016. "Do Better Informed Investors Always Do Better?," Working Papers in Economics 16/29, University of Canterbury, Department of Economics and Finance.
    4. Roger Bate & Ginger Zhe Jin & Aparna Mathur, 2012. "In Whom We Trust: The Role of Certification Agencies in Online Drug Markets," NBER Working Papers 17955, National Bureau of Economic Research, Inc.
    5. Glenn Boyle & Gerald Ward, 2018. "Do Better Informed Investors Always Do Better? A Buyback Puzzle," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 2137-2157, October.
    6. Glenn Furton & Adam Martin, 2019. "Beyond market failure and government failure," Public Choice, Springer, vol. 178(1), pages 197-216, January.
    7. Conor Parsons & Ian Smith, 2008. "The Price of Thoroughbred Yearlings in Britain," Journal of Sports Economics, , vol. 9(1), pages 43-66, February.
    8. Yu, Jie & Xiao, Shengsheng, 2023. "Project certification and screening in the reward-based crowdfunding market," Journal of Business Research, Elsevier, vol. 165(C).
    9. Andreas A. Haupt & Nicole Immorlica & Brendan Lucier, 2023. "Certification Design for a Competitive Market," Papers 2301.13449, arXiv.org.
    10. Emily J. Plant & C. Jill Stowe, 2019. "Is Moneyball Relevant on the Racetrack? A New Approach to Evaluating Future Racehorses," Journal of Sports Economics, , vol. 20(3), pages 428-447, April.
    11. Shikur, Zewdie Habte & Legesse, Belainch & Haji, Jema & Jelata, Moti, 2020. "Governance structures and incentives in the wheat value chain in Ethiopia," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 15(2), June.
    12. Koray Özpolat & Guodong (Gordon) Gao & Wolfgang Jank & Siva Viswanathan, 2013. "Research Note ---The Value of Third-Party Assurance Seals in Online Retailing: An Empirical Investigation," Information Systems Research, INFORMS, vol. 24(4), pages 1100-1111, December.
    13. Hildebrand, Kayla & Chung, Chinjin, 2023. "Selectivity Bias and Cattle Price in the Cattle Procurement Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 48(3), September.
    14. Emmanuel Paroissien & Michael Visser, 2020. "The Causal Impact of Medals on Wine Producers' Prices and the Gains from Participating in Contests," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(4), pages 1135-1153, August.

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