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The Informational Properties of Institutions: An Experimental Study of Persistence in Markets with Certification

Author

Listed:
  • Tom Wilkening
Abstract
Institutions that form to reduce moral hazard often eliminate discretion and pool the actions of heterogeneous agents. An unintended consequence of this pooling is that agents' types cannot be determined by their actions. While in the short run such mechanisms may be optimal, in the long run ineffcient institutions may persist because information about changes in the environment is lost. This paper studies a market with a moral hazard reducing certification technology. When certification is adopted, information embedded in market primitives is eliminated. This leads to the persistence of certification, an ineffcient institution that makes all participants weakly worse off.

Suggested Citation

  • Tom Wilkening, 2009. "The Informational Properties of Institutions: An Experimental Study of Persistence in Markets with Certification," Department of Economics - Working Papers Series 1087, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1087
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    References listed on IDEAS

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    More about this item

    Keywords

    Persistence of Institutions; Information; Externalities; Inecient MarketStructures; Experimental Economics;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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