Title

Collective Reputation, Professional Regulation and Franchising

Document Type

Discussion Paper

Publication Date

9-1-2007

CFDP Number

1627

CFDP Pages

37

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.

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