Certification Design With Common Values

This paper studies certification design and its implications for information disclosure. Our model features a profit-maximizing certifier and the seller of a good of unknown quality. We allow for common values as the seller's opportunity cost may depend on the quality of the good. We compare certifier-optimal with transparency-maximizing certification design. Certifier-optimal certification design implements the evidence structure of Dye (1985)—a fraction of sellers acquire information while the remaining sellers are uninformed—and results in partial disclosure to the market. A transparency-maximizing regulator prefers a less precise signal, which conveys more information to the market through a higher rate of certification and unraveling (Grossman (1981), Milgrom (1981)) at the disclosure stage.