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Reputational Externality and Self-Regulation

By Robert Evans and Timothy W. Guinnane


Professional associations and other producer groups often complain that their reputation is damaged by other groups providing a similar but lower-quality service and that the latter should be regulated. We examine the conditions under which a common regulatory regime can induce Pareto-improvements by creating a common reputation for quality among heterogeneous producers, when the regulator cannot commit to a given quality. A common reputation can be created only if the groups are not too different and if marginal cost is declining. High cost groups and small groups benefit most from forming a common regime

Topics: Quality Regulation, Licensing, Collective Reputation, Reputational Externality
Publisher: Faculty of Economics
Year: 2006
OAI identifier:
Provided by: Apollo

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