Collective Reputation, Professional Regulation and Franchising
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.
Evans, Robert and Guinnane, Timothy W., "Collective Reputation, Professional Regulation and Franchising" (2007). Cowles Foundation Discussion Papers. 1925.