Prague Economic Papers 2007, 16(2):99-114 | DOI: 10.18267/j.pep.300

Certification as a Viable Quality Assurance Mechanism in Transition Economies: Evidence, Theory, and Open Questions

Andreas Ortmann¹, Katarína Svítková²

¹ Center for Economic Research and Graduate Education, Charles University and Economics Institute, Academy of Sciences of the Czech Republic, Politických věznů 7, CZ - 111 21 Praha 1 (andreas.ortmann@cerge-ei.cz; aortmann@yahoo.com).

² School of Business Administration, The New Anglo-American College in Prague, Lázeňská 4, CZ - 118 00 Praha 1 (katarina.svitkova@cerge-ei.cz, katarina.svitkova@aac.edu).

Traditionally, enforcement of consumer protection laws meant to provide quality assurance of goods and services was considered a responsibility of the state in its various guises. Unfortunately, enforcement is an expensive, and hence particularly problematic proposition in transition economies that have many competing demands on their very scarce resources. An alternative mode of enforcement is through reputation. Yet for reputation to be able to fulfill this disciplining role, a high degree of information flow, or transparency, is imperative. Transparency, of course, is not something that transition economies typically excel in. In this article we discuss a third form of enforcement that relies much less, or not at all, on the state, and that relies on the market only indirectly: Certification agencies force their members to reveal their (good) type through costly signals that can be ""engineered"" to induce a separating equilibrium. We discuss the viability of this system of enforcement in an environment (namely, fundraising) where state and market have failed to deliver a satisfying degree of quality assurance.

Keywords: transition economies, experience goods, quality assurance, certification, self-regulation, enforcement

JEL classification: C72, D21

Published: January 1, 2007  Show citation