The Irrelevance of Fee Structures for Certification

Abstract

In models of certification, possible restrictions on the nature of the fee structures are commonly analyzed. We show that they are irrelevant for the certifier’s ability to maximize profits and trade efficiency. Our results establish that certification schemes involve two substitutable dimensions—the fee structure and the disclosure rule. In the context of a canonical unit good certification setup, these dimensions act as perfect substitutes for achieving trade efficiency and (monotone) distributions of rents; adjustments in the disclosure dimension can fully mitigate restrictions in the fee dimension, but these changes do affect market transparency. (JEL D82, D83, G24, G28)