What is the economic theory behind gains from certification?
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The economic theory behind gains from certification involves addressing informational problems related to experience and credence goods. Certification serves as a quality assurance mechanism, particularly crucial in low-income countries where malnutrition among infants necessitates higher-density foods with credence attributes. Certifiers differentiate tests and compete for customers through fee-setting, leading to self-selection of sellers based on their product quality. In a free-entry model of certification, certifiers set test standards and prices, with higher prices for certifying high-quality products, resulting in net gains increasing with product quality. The favorable cost-benefit ratios of certificate programs also contribute to the popularity and growth of certification enterprises.
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| Papers (5) | Insight |
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3 Citations | The economic theory supporting gains from certification lies in the favorable cost-benefit ratios of certificate programs, driving their popularity and growth among educational institutions and professional groups. |
| In the market for certifiers, the economic theory suggests that gains from certification increase with product quality, leading to differentiation in test standards and pricing based on quality levels. | |
| Consumers value quality assurance, leading to a willingness-to-pay for certification. Economic gains arise from increased consumer surplus due to improved information and trust in certified products. | |
Open access•Posted Content 6 Citations | The economic theory in certification markets suggests that sellers with varying quality levels self-select different certifiers based on test difficulty, leading to fee differentiation and market segmentation. |
01 Jan 2019 2 Citations | Certification in economics addresses asymmetric information issues for experience and credence goods, aiming to enhance market efficiency by providing reliable quality signals to consumers. |
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