Research Seminar on March 24, 2017

Topic: Seller-paid ratings
Speaker: Sergei Kovbasyuk (Einaudi Institute for Economics and Finance, Rome)
The workshop will take place at 3A Kantemirovskaya st., room 356 (3rd floor) at 16:50.

Abstract: We study the interaction between the seller of a product, the buyers who are uncertain about the product quality and a rating agency who observes the quality and sends signals about it. Assuming the seller-pays model of rating agency, we analyze the cases in which the payment to the rater is publicly disclosed and fixed, publicly disclosed and rating-contingent, private and rating-contingent. First, we characterize all possible equilibrium partitions of the underlying quality range into ratings in these three cases. Under a fixed payment, the ratings are cheap talk and convey no information in equilibrium. When the payment is public and rating-contingent, perfectly revealing ratings are feasible. Under a private rating-contingent payment, only partitions with coarse ratings are feasible. We then characterize the seller's optimal ratings in the three cases. Under a public rating-contingent payment the seller prefers perfectly revealing ratings with positive payments above some quality threshold, and a single coarse rating with zero payments below the threshold (rejections). Under a fixed payment and under a private rating-contingent payment the seller prefers uninformative rating. Finally, we perform welfare analysis and discuss regulation. A desirable regulati on of payments requires public disclosure and allows contingent payments.

The aim of the seminar is to discuss the work in progress,
yours and others ideas, which can be interesting.

If you want to give a talk at the future seminars, please, contact Fedor Sandomirskiy: sandomirski@yandex.ru , +7(921)633-23-53