The Irrelevance of Fee Structures for Certification
American Economic Review: Insights
vol. 6,
no. 1, March 2024
(pp. 55-72)
Abstract
In models of certification, possible restrictions on the nature of the fee structures are commonly analyzed. We show that they are irrelevant for the certifier's ability to maximize profits and trade efficiency. Our results establish that certification schemes involve two substitutable dimensions—the fee structure and the disclosure rule. In the context of a canonical unit good certification setup, these dimensions act as perfect substitutes for achieving trade efficiency and (monotone) distributions of rents; adjustments in the disclosure dimension can fully mitigate restrictions in the fee dimension, but these changes do affect market transparency.Citation
Pollrich, Martin, and Roland Strausz. 2024. "The Irrelevance of Fee Structures for Certification." American Economic Review: Insights, 6 (1): 55-72. DOI: 10.1257/aeri.20220698Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- G28 Financial Institutions and Services: Government Policy and Regulation