Experimental Analysis of the Reputational Incentives in a Self Regulated Organization

Abstract

Self regulation is a mechanism of quality vigilance that is frequently used in credence good industries. The providers in these markets generally form a Self Regulated Organization (SRO), composed by some members of the industry, whose main job is to convince consumers through an active surveillance of her members that they will receive goods or services with high standards of quality. The SRO main objective is to create confidence among consumers about the quality they are receiving from the market. Hence, consumers expects that an SRO: a) effectively watch her members, controlling their quality provision; and b) punish and publicly denounce those members found providing a bad quality service, as a credible signal of her level of surveillance and the quality the consumers may expect from other members. However, self regulation imply by definition a situation of regulatory capture, hence the following questions naturally appear: ¿Does the SRO has the correct incentives to do her job?, and ¿where do those incentives may come from?. The main objective of this work is to analyse in the lab how consumers interpret or learn to interpret the exposure that receive from an SRO, and given this interpretation if the SRO behaviour is consistent with the presence or absence of a reputational incentive to denounce. A full run of the experimental sessions is conducted from March to May 2004 at the University of ChileCredence Good, Self-Regulated Organization, Sender-Receiver Games, Reputational Incentives