Certification and Signaling: The Importance of Markets and What Makes Them Work
J. Michael Pinegar examines financial and labor markets in terms of what makes them work efficiently. Information asymmetry between buyers and sellers can result in market failure. Two common ways to reduce information asymmetry are certification and signaling. Certification refers to a reputable third party, who affirms the quality of a product. Signaling refers to costs the seller incurs to convey the quality of the product to potential buyers. The signal might be something like a warranty. Both of these mechanisms facilitate market functioning. Pinegar gave this presentation as the BYU 2013 Maeser Distinguished Faculty Lecture.