Séminaire NANCY – Pierre FLECKINGER (PSE)

Détails de l'événement :

“Collective Quality” avec Wanda Mimra et Angelo Zago

Abstract:  The ubiquity of collective brands appears puzzling as collective production is considered to create free-riding and impede quality. We carve out the incentive effects and efficiency properties of collective schemes in a parsimonious model of collective reputation for quality. Heterogeneous producers whose costs are imperfectly known need to provide effort to produce high quality. The demand side a priori does not observe true quality, but high quality is detected with some probability, reflecting expert inspections, certification, awards, and the regulatory framework. Unidentified products are pooled together according to the collective reputation structure, i.e. grouping of producers. In the unique equilibrium, each group is subject to internal free-riding by their higher-cost  members. However, this boosts quality provision by more efficient producers. We thus find that collective reputation might yield higher quality and welfare than individual reputation: Free-riding under collective reputation can be less severe and entails more efficient  production than own-reputation milking under individual reputations. Despite potentially higher producers’ surplus, any group with collective reputation however unravels in absence of transfers. Nonetheless, we exhibit simple type-independent and budget-balanced contracts under collective reputation that implement the first best.