Incentives for Quality in Friendly and Hostile Informational Environments
- (pp. 242-74)
Abstract
We develop a model of costly quality provision under biased disclosure. We define as friendly an environment in which the disclosure probability increases with quality, and as hostile an environment in which the opposite holds. Hostile environments produce a positive externality among sellers and potentially multiple equilibria. In contrast, friendly environments always yield a unique equilibrium. We establish that the environment that maximizes quality generates signals contradicting buyers' expectations. Hence, hostility produces greater incentives for quality than friendliness when costs are low and monitoring resources high.Citation
Fleckinger, Pierre, Matthieu Glachant, and Gabrielle Moineville. 2017. "Incentives for Quality in Friendly and Hostile Informational Environments." American Economic Journal: Microeconomics, 9 (1): 242-74. DOI: 10.1257/mic.20150119Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- L15 Information and Product Quality; Standardization and Compatibility
- L82 Entertainment; Media
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