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.
"Incentives for Quality in Friendly and Hostile Informational Environments."
American Economic Journal: Microeconomics,
Asymmetric and Private Information; Mechanism Design
Information and Product Quality; Standardization and Compatibility