Collective Reputation, Professional Regulation and Franchising
38 Pages Posted: 17 Sep 2007
Date Written: September 2007
Abstract
Collective reputation and its associated free-rider problem have been invoked to justify state licensing of professions and to explain the incidence of franchising. We examine the conditions under which it is possible to create a Pareto-improving collective reputation among groups of heterogeneous producers. If the regulator or franchisor cannot credibly commit to high quality then a common reputation can be created only if the groups are not too different and if marginal cost is declining. High cost groups benefit most from forming a common regime.
Keywords: Quality regulation, Licensing, Collective reputation, Reputational externality, Franchising
JEL Classification: L43, L44
Suggested Citation: Suggested Citation