Thursday, January 19, 2012
Posted by D. Daniel Sokol
Camille Chaserant and Sophie Harnay (University of Paris West) provide Reputation on a credence good market: an economic analysis of professional self-regulation.
ABSTRACT: This article provides a rationalization of (at least partial) professional self-regulation resting on the joint production of individual and collective reputations and its impact on the quality of professional services. It presents a short model that aims to show that (i) a high-quality steady-state exists in a market for a credence goods and that (ii) the likelihood of high quality increases when the market is self-regulated by the profession in comparison to the situation where there is no self-regulation. The law and economics literature usually criticizes self-regulation as a modern form of corporatism; we show that it may help to regulate quality when clients are faced with opportunistic professionals.