COWLES FOUNDATION FOR RESEARCH IN
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COWLES FOUNDATION DISCUSSION PAPER NO. 1627 Collective Reputation, Professional Regulation and Franchising Robert Evans and Timothy W. Guinnane September 2007 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. JEL Classification: L43, L44 Keywords: Quality regulation, Licensing, Collective reputation, Reputational externality, Franchising |
