Location: 368A Heady Hall
Abstract: This paper provides an empirical measure of the economic surplus loss arising from the failure of a market to supply quality in the presence of asymmetric information. When consumers cannot directly observe product characteristics, for instance in the presence of credence attributes, incentives for producers to supply quality may be suppressed. We exploit quasi-random variation in the timing of pioneering regulations aimed at resolving asymmetric information problems in the French wine market in the late 1930s to identify related welfare losses. Results indicate large potential losses from the quality-related market failure, suggesting an important role for credible certification schemes.
Contact Person: Wendong Zhang