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Studies in European Economic Law and Regulation 16
Certification –
Trust,
Accountability,
Liability
Studies in European Economic Law
and Regulation
Volume 16
Series editors
Kai Purnhagen
Law and Governance Group, Wageningen University
Wageningen, The Netherlands
Josephine van Zeben
Worcester College, University of Oxford
Oxford, United Kingdom
Editorial Board
Alberto Alemanno, HEC Paris, Paris, France
Mads Andenaes, University of Oslo, Oslo, Norway
Stefania Baroncelli, University of Bozen, Bozen, Italy
Franziska Boehm, Karlsruhe Institute of Technology, Karlsruhe, Germany
Anu Bradford, Columbia Law School, New York, USA
Jan Dalhuisen, King’s College London, London, UK
Michael Faure, Maastricht University, Maastricht, The Netherlands
Jens-Uwe Franck, Mannheim University, Mannheim, Germany
Geneviève Helleringer, University of Oxford, Oxford, UK
Christopher Hodges, University of Oxford, Oxford, UK
Lars Hornuf, University of Bremen, Bremen, Germany
Moritz Jesse, Leiden University, Leiden, The Netherlands
Marco Loos, University of Amsterdam, Amsterdam, The Netherlands
Petros Mavroidis, Columbia Law School, New York, USA
Hans Micklitz, European University Institute, Florence, Italy
Giorgio Monti, European University Institute, Florence, Italy
Florian Möslein, Philipps-University of Marburg, Marburg, Germany
Dennis Patterson, Rutgers University, Camden, USA
Wolf-Georg Ringe, University of Hamburg, Hamburg, Germany
Jules Stuyck, Katholieke Universiteit Leuven, Leuven, Belgium
Bart van Vooren, University of Copenhagen, Copenhagen, Denmark
This series is devoted to the analysis of European Economic Law. The series’ scope
covers a broad range of topics within economics law including, but not limited to,
the relationship between EU law and WTO law; free movement under EU law and
its impact on fundamental rights; antitrust law; trade law; unfair competition law;
financial market law; consumer law; food law; and health law. These subjects are
approached both from doctrinal and interdisciplinary perspectives.
The series accepts monographs focusing on a specific topic, as well as edited
collections of articles covering a specific theme or collections of articles. All
contributions are subject to rigorous double-blind peer-review.
Certification – Trust,
Accountability, Liability
Editor
Peter Rott
University of Kassel
Kassel, Germany
This Springer imprint is published by the registered company Springer Nature Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Contents
Part I Foundations
Certification as Solution to the Asymmetric Information Problem? ���������� 11
Georg von Wangenheim
Challenges for Responsible Certification in Institutional Context:
The Case of Competition Law Enforcement in Markets
with Certification ���������������������������������������������������������������������������������������������� 23
Victoria I. Daskalova and Michiel A. Heldeweg
The Use of Conformity Assessment of Construction Products by the
European Union and National Governments: Legitimacy, Effectiveness
and the Functioning of the Union Market ������������������������������������������������������ 73
Richard Neerhof
v
vi Contents
Peter Rott
1
For detailed account, see chapter 3 by VI Daskalova and MA Heldeweg. See also Schepel (2005),
p. 3 ff.
2
CJEU, 12/7/2012, Case C-171/11, Fra.bo SpA v Deutsche Vereinigung des Gas- und Wasserfaches
eV (DVGW) — Technisch-Wissenschaftlicher Verein, ECLI:EU:C:2012:453.
P. Rott (*)
Institute of Economic Law, Faculty of Economics and Management, University of Kassel,
Kassel, Germany
e-mail: rott@uni-kassel.de
by that body. The decision in the case of James Elliott3 complemented this line of
thinking. In this case, the CJEU found that it has jurisdiction to provide a prelimi-
nary ruling concerning the interpretation of a harmonised standard that was devel-
oped by a private body under the so-called ‘New Approach’ of EU product safety
law, thus treated that private standard as part of EU law. The two decisions have
triggered intense discussion relating to the constitutionalisation of standardisation
and certification by private actors, in particular in the context of the ‘New Approach’.4
In a parallel development, the relevance of certification and similar phenomena,
such as credit ratings, for the protection of the economic interests or the health and
safety of third parties has come to the fore. The breast implants scandal around the
French producer Poly Implants Prothèse (PIP) forms a prime example. PIP had
filled the breast implants with industrial silicone rather than medical silicone. Within
the system of EU medical devices law, TÜV Rheinland acted as notified body to
monitor the activities of PIP. TÜV Rheinland had certified compliance of the prod-
uct design of the PIP breast implants and of PIP’s quality management system with
the underlying standard. Since TÜV Rheinland had not noticed the fraudulent
change of production by PIP (and since PIP itself went bankrupt following the dis-
covery of the fraud), victims initiated litigation against TÜV Rheinland in German
and French courts. Out of the many cases, the case of Elisabeth Schmitt was referred
to the CJEU.5 Rating agencies, in turn, attracted the attention of policy-makers and
of investors likewise in the context of the financial crises, and in particular of the
collapse of Lehman Brothers whose financial products had been rated “AAA” by
Standard & Poor’s. Litigation has already been initiated in different countries
including Australia and Germany.6
The above-mentioned areas of medical devices, or product safety generally, and
of credit rating are only two examples for areas in which certification plays an
important role. Other areas are the certification of food standards, of social and/or
environmentally sound production or sourcing or of compliance with standards of
consumer law or data protection law.
The cases of PIP and Lehman Brothers trigger several questions. Who benefits
from certification? Standardisation benefits primarily the relevant industry whose
transactions costs are reduced through standardisation and through certification of
compliance with certain standards.7 At the same time, certification systems may
serve further purposes, such as the protection of users or other third parties, and the
certificates that are issued may be addressed to a diversity of actors. Thus, the main
addressee of certificates can be the customer of the producer or trader who or whose
3
CJEU. 27/10/2016, Case C-613/14 James Elliott Construction Limited v Irish Asphalt Limited,
ECLI:EU:C:2016:821.
4
See, for example, Schepel (2013), p. 530; van Leeuwen (2013), p. 406; Purnhagen (2017), p. 586;
Volpato (2017), p. 597; Colombo and Eliantonio (2017), p. 332.
5
CJEU, 16/2/2017, Case C-219/15 Elisabeth Schmitt v TÜV Rheinland LGA Products GmbH,
ECLI:EU:C:2017:128. See chapter 9 by P Rott and the references therein.
6
See chapter 11 by A Halfmeier and the references therein.
7
See, for example, DIN (2000) and Blind et al. (2011).
Introduction 3
The book is structured in three parts. Part 1, consisting of three chapters by Georg
von Wangenheim, Michiel Heldeweg and Victoria Daskalova, and Richard Neerhof,
focuses on the fundamentals of certification: its economic background, the manifold
shapes and forms certification can take, and its relevance for competition and free
trade.
The chapters of Part 2 deal with the conditions for the success of certification in
creating trust as well as incentives for compliance with private standards, and in
monitoring compliance with standards, using examples from various sectors. Gerrit
Hornung and Stefan Bauer introduce and discuss the new data protection seal as
envisaged by the General Data Protection Regulation. Miranda Meuwissen presents
empirical studies that show how certification gains relevance for insurance by facili-
tating risk classification and management. In a more skeptical approach, Hanna
Schebesta looks at problematic (voluntary) certification practices in the food sector
and presents the new certification marks of the EU Trademark Regulation of 2015
4 P. Rott
Part 2 starts with Gerrit Hornung’s and Stefan Bauer’s chapter on ‘The new
European Data Protection Seal – data protection through market’ that discusses the
increasing prominence of certification in the sector of data protection. Under the
new General Data Protection Regulation (GDPR), audit and certification mecha-
nisms are means of co-regulation and aimed at creating market incentives. This
optional enforcement layer is meant to enhance the standard of privacy protection.
At the same time, the authors show that the new rules offer the opportunity to create
transparency through a system of harmonised standards with regard to privacy seals
and marks; instruments that have been used in the market before but with limited
informative value, due to the lack of common standards.
That certification is indeed suitable to build trust is shown by Miranda Meuwissen
in her chapter ‘Can certification enhance the feasibility of insurance?’. The feasibil-
ity of insurance heavily depends on the behaviour of the insured. Certification can
be a tool to facilitate risk classification and monitoring. The author presents findings
from empirical studies on liability insurance in the animal feed industry, epidemic
disease insurance for farmers, and liability insurance in the horse business, that
illustrate that certification schemes have the potential to enhance feasibility of insur-
ance schemes, among others as a tool to cope with adverse selection.
In contrast, Hanna Schebesta rather deals with ‘bad’ certification practices, using
the food sector as an example. In her contribution ‘Control in the label - self-
declared, certified, accredited? - On-pack consumer communication about compli-
ance control in voluntary food schemes from a legal perspective’, she identifies
problematic certification practices in the domain and explores the potential of the
current regulatory framework of unfair commercial practices law to effectively
combat these practices. Moreover, she discusses a new legal development that might
provide for more stringent solutions than food information law in the narrow sense:
6 P. Rott
EU certification marks that were introduced with the new EU Trademark Regulation
of 2015 and that are meant to inform end-consumers of product qualities related to
the largely opaque steps of the process leading to the product to which they are
affixed.
The last chapter of Part 2, by Carola Glinski on ‘Certification of the sustainabil-
ity of biofuels in global supply chains’, deals with an area where public law control
of the production chain is not possible, due to public international law limitations,
but where simple exclusion of foreign actors or products is not feasible either, due
to the requirements of international trade law. The promotion of biofuels in the EU
aims at the substitution of fossil fuels and the reduction of carbon emissions. In
order to make sure that the production of biomass does not result in negative impacts
on greenhouse gas stocks or on biodiversity, the promotion of biofuels is accompa-
nied by sustainability requirements. As the majority of biomass for biofuels is pro-
duced in the ‘Global South’ with often low regulatory and enforcement capacities,
compliance with the sustainability requirements is safeguarded through a highly
complex certification set-up based on private certification systems and private certi-
fication bodies which thereby replace, to a certain extent, the regulatory and admin-
istrative role of the State. The author analyses that system of control and its potential
weaknesses to ensure sustainable production of biofuels.
Peter Rott picks up the topic of the effectiveness of private certification in product
safety law and the role of tort law liability for the compensation of victims of negli-
gent certification and as a regulatory instrument to incentivise certification bodies to
live up to their duties. In his contribution ‘Certification of medical devices: Lessons
from the PIP scandal’, he describes the development of certification and accredita-
tion in medical devices law. Having started with a fairly general framework, proven
failures in the system, and in particular the breast implant scandal around the French
producer Poly Implant Prothèse (PIP) and the German certification organisation
TÜV Rheinland, medical devices law has seen ever more intense regulation of the
control chain, culminating in the new Medical Devices Regulation of 2017. The
narrative of the legislative history and the reasons for the various legislative changes
illustrate the risks that come with the privatisation of health and safety regulation
and control and trigger the question as to whether private law liability of certifica-
tion organisations towards victims of unsafe medical devices is a necessary ingredi-
ent to make the system work.
Liability for insufficient control by certification organisations is also at the heart
of the contribution by Vibe Ulfbeck and Anders Møllmann on ‘Public function lia-
bility of classification societies’, dealing with the certification of vessels. Among
others, flag states commonly delegate it to classification societies to perform sur-
veys and inspections pursuant to various international conventions and to issue cer-
tificates under these conventions on behalf of the flag state (statutory certification).
Introduction 7
4 A Word of Thanks
References
Blind, K., Jungmittag, A., & Mangelsdorf, A. (2011). Der gesamtwirtschaftliche Nutzen der
Normung. DIN.
Colombo, C., & Eliantonio, M. (2017). Harmonized technical standards as part of EU law:
Juridification with a number of unresolved legitimacy concerns? Case C-613/14 James
Elliot Construction Limited v. Irish Asphalt Limited, EU:C:2016:821. Maastricht Journal of
European and Comparative Law, 24, 332.
DIN. (2000). Gesamtwirtschaftlicher Nutzen der Normung - Unternehmerischer Nutzen. DIN.
Purnhagen, K. (2017). Voluntary “New Approach” technical standards are subject to judicial scru-
tiny by the CJEU! – The remarkable CJEU judgment “Elliott” on private standards. European
Journal of Risk Regulation, 8, 586.
8 P. Rott
Schepel, H. (2005). The constitution of private governance – Product standards in the regulation
of integrating markets. Oxford, England: Hart.
Schepel, H. (2013). The new approach to the new approach: The juridification of harmonized stan-
dards in EU law. Maastricht Journal of European and Comparative Law, 20, 530.
van Leeuwen, B. (2013). From status to impact, and the role of national legislation: The applica-
tion of article 34 TFEU to a private certification organisation in Fra.bo. European Journal of
Risk Regulation, 4, 406.
Volpato, A. (2017). The harmonized standards before the ECJ: James Elliott Construction.
Common Market Law Review, 57, 597.
Part I
Foundations
Certification as Solution to the Asymmetric
Information Problem?
1 Introduction
1
Viscusi (1978), p. 277.
Since the seminal papers of Nelson2 and Darby and Karni,3 it is common to distin-
guish the three types of goods mentioned in the title of this section. Search goods
are what economists have in mind when they present the simple model of a competi-
tive market or even a monopoly market. All parties to a contract can easily observe
all properties of search goods which the contract covers before it is concluded.
Hence, there are no information asymmetries. Any care the seller of such a good
takes increases the quality of the good as the buyer observes it. Consequently, addi-
tional care increases the buyer’s valuation of the good and thus his willingness to
pay too. The seller of the product has thus incentives to increase care and thus the
quality of the product as long as the additional costs of care and quality are lower
than the additional valuation of the buyer for the good measured in his willingness
to pay. There is thus no need for any further incentives for the seller to take care and
provide high quality. No regulation is needed, not even liability is required as an
incentive to achieve economic efficiency.
Rarely the argument convinces for all properties of a specific good. It is therefore
more precise to speak of search properties of a good—and experience properties
and credence properties accordingly. However, most of the arguments are more eas-
ily presented if one assumes that all goods can easily be allocated to one of the three
groups without differentiation with respect to their specific properties. We therefore
follow this simplification, which is standard in the literature.
If the buyer cannot observe the qualities of a good before the contract, it is called
an experience good or a credence good, depending on whether the buyer can observe
properties after having entered into the contract or not even then. In both cases, the
argument in favour of economic efficiency of the market is flawed: while additional
care does still increase quality (and costs of production), the buyer’s valuation of the
product and his willingness to pay are not affected any more. Therefore, taking care
and increasing quality cease to be worthwhile to the seller. As Akerlof has shown,
2
Nelson (1970), p. 311.
3
Darby and Karni (1973), p. 67; an often-cited formalization and extension of the argument is
Emons (1997), p. 107.
Certification as Solution to the Asymmetric Information Problem? 13
also in 1970,4 any variance of quality in the market tends to break down and so
possibly does the entire market due to the problem of adverse selection. Of course,
there are ways to overcome these problems, ranging from guarantees given by the
seller in order to signal his high quality, reputation, regulation and, not the least, the
topic of this chapter: certification as a means to reduce asymmetries of information.
All these remedies may substitute each other to some degree, but certification may
be the most efficient remedy under certain circumstances. It is therefore helpful to
better understand how certification works in detail.
Nearly 40 years ago, Kip Viscusi introduced a first model of purely market-based
certification as a means to signal high quality of a producer.5 The argument is based
on standard signalling theory: High-quality producers of goods approach a (private)
certification agency.6 This certifier investigates the quality of the product at some
costs, which he charges to the producer demanding certification.7 His investigation
technology is rather simple: if he incurs the costs (of a given amount), he receives
perfect and complete information on the quality of the product. He then correctly
certifies this quality in a way that consumers of the good can fully understand. As a
consequence, consumers can and do decide according to their preferences which of
the certified products they buy and at which price. Obviously, it is not worthwhile
for low quality producers to purchase certification because such certification would
not provide any information to consumers that is valuable to the producer. In equi-
librium, only and all producers whose products are of a sufficiently high quality will
purchase certification, where ‘sufficiently high’ means that the quality induces con-
sumers to be willing to pay more than their average valuation of non-certified prod-
ucts plus the certification costs. From the consumers’ perspective, such certification
elucidates the individual quality of all high quality products and the average quality
of uncertified low-quality products.
4
Akerlof (1970), p. 488.
5
Viscusi (1978).
6
Stahl and Strausz (2017), p. 1842, discuss the assumption that it is the producers who pay the
certifier and not the consumer—an assumption prevailing in nearly all publications on certifica-
tion. They show that in general, certification purchased by producers is (1) more informative due
to the information contained in the decision to certify, which is partly observable and (2) superior
from a welfare point of view. The result is reinforced by the argument that certification purchased
by consumers may be obstructed by low-quality producers. The only exception to this result is
subsidized certification: Stahl and Strausz show their central results hinge on the price for certifica-
tion being at or above marginal costs of certification.
7
Faulhaber and Yao (1989), p. 65, consider a different type of information producing agents:
‘reviewers’ who are paid by consumers rather than by producers, which turns the model from a
signaling to a screening approach. As ‘reviewing’ is empirically much less relevant than certifica-
tion, this paper concentrates on the latter.
14 G. von Wangenheim
8
Biglaiser (1993), p. 212, was the first to mention these possibilities.
9
Biglaiser (1993) circumvents this problem by assuming that certification only refers to a single
unit of the good and each and every unit is certified individually.
10
Strausz (2005), p. 45.
Certification as Solution to the Asymmetric Information Problem? 15
gains and long run losses from reneging on one’s quality promise. In a dynamic
setting, reputation therefore exhibits substantial economies of scale and economies
of scope: the larger a firm and the more products benefit from the same reputation,
the more there is to lose from defecting on reputation and thus the more credible a
promise to provide high quality becomes. As certifiers specialise in reputation for
credibility, their business is most susceptible to the consequences of economies of
scale and scope: monopolization of the market, or at least oligopolisation. As
Strausz shows, this may raise prices in the certification market even beyond the
static monopoly price.
However, the economic literature is far from completely understanding reputa-
tion in certification markets as the solution to the asymmetric-information problem.
The existing models11 suffer from multiple equilibria, only some of which stabilise
reputation and honest certification. Most publications in the field concentrate on
these desirable equilibria but fail to give good reasons for this abstraction, nor do
they explain how reputation for honest certification grows in the first place.12 Again,
the aforementioned economies of scale and scope exacerbate the problem—reputa-
tion only becomes stable when it promises future gains for many and frequent cases.
To propose government regulation of certification agencies as an alternative
solution to asymmetric information raises questions of the same kind as in other
markets. If government wanted to regulate the output of certifiers, it would be hard
to imagine why the regulator does not use the information required for such regula-
tion of the certifiers to regulate the certified industry directly. Regulation by liability
would suffer from the same problems as discussed before for guarantees. Given the
limited information available to evaluate the care that certification agencies take,
both a negligence and a strict liability regime would expose the certification agen-
cies to a risk of high-stake liabilities that would very quickly destroy any supply on
the market for certification.
Only input regulation, i.e. qualification requirements for the certifiers and
requirements of observable signals of high effort that agencies exert to prepare their
certification decision, can be administered without essentially suppressing any sup-
ply of certification services. Obliging certifiers to employ qualified personnel or
proving their competence in some way or other reduces their opportunity costs of
handing down high-quality certification decisions.13 Obviously, such input regulation
11
Apart from Strausz (2005) see, e.g. Peyrache and Quesada (2011), p. 1099.
12
Peyrache and Quesada (2011) construct a model, in which the certifiers do not switch immedi-
ately from honesty to complete corruption when their time preference becomes too strong, but
gradually increase the range of true qualities for which they accept bribes for exaggerating the
quality in their report, when the relative value they attach to future profits declines.
13
See Shapiro (1986), p. 843, for a first model studying the effects of input regulation in markets
with reputation for output quality. Shapiro considers input regulation in two forms: licensing, i.e.
abolition of supply by producers without a minimum education, and certification, i.e. truthful
information of consumers about whether a producer has passed the minimum education or not.
Note that Shapiro uses the term ‘certification’ for information on input qualification while in this
paper I use it for information on output quality, in line with most of the economic certification
literature.
16 G. von Wangenheim
is far from guaranteeing high quality certification, not the least because it also
reduces competition between certifiers.14
In addition to the simple model of shirking and collusion with only two or three
alternative actions of the certification agency discussed so far in this section, one
could explicitly model the probability of the certifier to determine the quality cor-
rectly as a function of his effort to avoid such errors. On first sight, this endogeneity
of error probabilities does not change much of the argument presented so far.
Producers with high quality will still be the ones who request certification and the
problems of collusion between producer and certifier remain vivid. However, strate-
gies to overcome incentive problems of certification agencies cannot be as simple as
before. As error probabilities cannot be zero with finite effort, optimal strategies of
both producers and consumers must be forgiving and somewhat tolerant with
respect to misreported quality.15 In such a world, market incentives for producers to
produce high quality and for certifiers to exert effort and not to collude with produc-
ers necessarily are incomplete. Although to the best of my knowledge no such
model of certification exists in the literature, I conjecture that no Nash equilibrium
with a socially optimal level of the certifier’s effort or absence of collusion exists,
because that would require observation of effort or full internalization of the conse-
quences of errors. Certification therefore will not be a perfect solution to the quality
problem. Any lawyer-economist might again be tempted to rely on liability to close
the gap between market equilibrium and the social optimum. However, the same
obstacles as discussed before will prevent this approach from being successful.
Strict liability would entail complete insurance of consumers by certifiers for which
hardly any consumer would be willing to pay. Perhaps to a lesser degree but still so,
the same would be true for negligence liability due to unobservability of the certi-
fier’s effort and a thus necessarily uncertain standard of care.
14
Kleiner (2000), p. 189, stresses this problem for occupational licensing in general.
15
See Green and Porter (1984), p. 87, for an early model of enforcement of cooperation with uncer-
tainty in a completely different field (cooperation in a cartel). Ganuza et al. (2016), p. 213, apply
the model to quality reputation but not to certification.
Certification as Solution to the Asymmetric Information Problem? 17
is demand for low quality products or not. Buehler and Schuett16 study the effects of
such certification in a duopoly market with some but not all consumers uninformed
about quality. They show that minimum quality certification is superior to minimum
quality regulation when the number of uninformed consumers is large because the
latter tends to deter firms from entering into the market. Van der Schaar and Zhang17
show that the existing results do not depend on the crude simplifications of the pre-
vious literature but extend to a situation where information of some consumers is
not exogenously given, but evolves from reputation over time by Bayesian updating
based on stochastically distorted quality observations.
Lizzeri18 endogenises the disclosure strategy of the intermediary in his model. In
particular, he assumes that the certifier perfectly observes the quality of a good, but
truthfully discloses information on this quality only according to a previously
announced rule, which may, for example, be disclosure of the exact quality or only
information on whether a certain threshold has been passed. One should note that
this assumption also excludes collusion between the producer and the certifier. It
turns out that certifiers with market power will restrict the information they
disclose.
In the extreme case of a monopolist certifier and quality being a merely stochas-
tic outcome of production costs equal across all producers, information will be
restricted to whether quality meets or passes one certain threshold, where this
threshold guarantees that socially valuable qualities, i.e. those which consumers
value higher than the costs of production, are certified while the others are not. The
central argument for this being an equilibrium is that it allows the certifier to maxi-
mise his profits. In less extreme cases, disclosed information will be more detailed
for high qualities, but there will be no differentiation between the low quality
products.
The insights of Lizzeri indicate that certifiers’ policies to only inform about
whether quality meets a threshold is not only a tribute to restrictions of consumers’
limited abilities to process detailed information but also originates from certifiers’
profit maximisation.19 Farhi et al.20 and Lerner and Tirole21 have extended the argu-
ment to incorporate multiple certifiers with only one threshold for each certifier but
different thresholds across them. None of them is interested in revealing the identi-
ties of producers who applied for their certificate but failed to meet the standard.
Such tiered certification systems also add more costs, and delay, to the provision of
information, as producers tend to start high and apply with lower tier certifiers only
after having failed to get high-level certification.
16
Buehler and Schuett (2014), p. 493.
17
van der Schaar and Zhang (2015), p. 509.
18
Lizzeri (1999), p. 214.
19
For an overview of further results supporting this claim, see Pollrich and Wagner (2016), pp. 345
and 346.
20
Farhi et al. (2013), p. 610.
21
Lerner and Tirole (2006), p. 109.
18 G. von Wangenheim
6 Open Questions
Despite many steps forward in economic research on certification during the last
two decades, understanding of the full complexity of certification in real world mar-
kets is still incomplete. Three major open questions are the effects (1) of heteroge-
neous consumer preferences, (2) of bounded rationality, and (3) of producers’
choice between quality improvement and active concealment of low quality.
Heterogeneity of consumers’ preferences is likely to be covered with minor
changes of the existing models when only one quality dimension exists and con-
sumers vary in their willingness to pay for such quality. However, adding more
dimensions adds more strategic choices for certifiers as well as for producers.
Imagine, for example, a market for a good produced from resources harvested in
less developed countries and consumed in industrialized countries. Consumers may,
and casual experience shows that they do, care for ecological aspects of resource
growing in LDC and of production in the industrialized country, for social circum-
stances of resource growing and production (e.g. child labour), and for the effects of
the final product on consumers’ health. And consumers will care for these aspects to
different degrees. Das23 provides a first attempt to analyse certification in a market
in which consumers care for more than one quality dimension. Although he models
certification only for one dimension, the addition of a second preference dimension
seems to alter results dramatically and provide additional insights: non-profit certi-
fication becomes superior to for-profit certification if the second dimension of pref-
erences has weak effects on consumers’ choices.24
Such heterogeneity is likely to bring about separate certification agencies, each
being responsible for one or very few quality dimensions. Even within one general
22
Albano and Lizzeri (2001), p. 267; Hvide (2009), Article 5.
23
Das (2016), p. 251.
24
The intuition for this surprising result is that non-certification and thus production of low quality
may be a means to separate markets and thus collect monopoly rents on both markets. If differen-
tiation by the second quality dimension is large enough, certification is not needed to differentiate
products.
Certification as Solution to the Asymmetric Information Problem? 19
quality aspect with asymmetric information, several certifiers may emerge despite
the aforementioned concentration tendencies. Closely competing certification agen-
cies will of course compete on prices they charge to producers but also on the appro-
priateness of their standards of certification for consumers’ preferences. Given
bounded rationality of consumers, even certificates for completely useless or other-
wise irrelevant properties, like e.g. ‘produced without labour of white elephants’,
may emerge and remain in the market for some time. Economic analysis of such
distracting certificates is as much open to further research as the selection of rele-
vant quality dimensions by certifiers.
Surprisingly, nearly all existent economic models of certification completely rely
on asymmetric information in a world where consumers are perfectly rational.25 It is
well known that bounded rationality is not as easily described in a general model as
perfect rationality. Nevertheless, as certification has developed as one major way to
reduce information asymmetries it seems to be straight-forward to also include it in
models with boundedly rational consumers as an instrument to reduce complexity
of information and thus improve decisions of these boundedly rational consumers.
Pu and Zhang26 are the only authors so far, who explicitly include bounded rational-
ity in a model of voluntary certification. However, they reduce bounded rationality
to the inability of consumers to recognise fraudulent certification in a model of one
quality dimension and a given proportion of consumers who are rational and thus
identify the quality of the good directly. Problems of bounded rationality related to
the multiplicity of quality dimensions remain uncovered in the theory-based litera-
ture. Our economic understanding of these problems is still scant.
Finally, a third open field in microeconomic theory in general and the economic
discussion of voluntary certification in particular deserves mention here: the aggra-
vation of information asymmetries by producers, and certifiers, of goods. Suppliers
in any market may be tempted to spend resources on misleading consumers of their
products, be they goods or information, in their perception of quality. The weakest
form, still close to the standard approach in asymmetric-information theory, is
spending resources on hiding information, which may be described theoretically as
the mirror image of not spending resources on disclosing information in a reliable
way.27
There are stronger forms of costly misinformation, though. For example, suppli-
ers may, and some do, actively spread information on exaggerated qualities of their
products or on qualities they do not have at all. Doing so is of course costly. Bischoff
25
Combining the search words “certification” and “bounded rationality” returns zero entries in
EconLit and one for a law journal contribution in SSRN (Becher 2009, p. 747). scholar.google
returns more entries, but none on the first pages really combines the two approaches. ISI Web of
Science returns one case study (Pelaez et al. 2010, p. 27) and the only theory-based paper by Pu
and Zhang (2016), Article No 953.
26
Pu and Zhang (2016).
27
Stahl and Strausz (2017) refer to this problem when comparing producer-purchased and con-
sumer-purchased certification, but their model excludes nearly all other problems discussed in the
current paper.
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weight, or near enough, the needle stands perpendicular between
the pallets, and the piece finds its way into the third brass pan.”
On the opposite wall is a fine cast of Cromwell, a duplicate of one
taken shortly after his death. It was placed here by Mr. W. E. Du
Bois, who received it from H. W. Field, Esq., late Assayer of the
Royal Mint, London, who is a descendant of the great Protector.
Below the cast of Cromwell is a case showing progressive “alloys of
gold.” The plates comprise gold alloyed with copper, gold alloyed
with silver, and gold fine.
In the eastern section are the Standard Test Scales, used to test
the weights sent to all the mints and assay offices in the United
States, and are so delicate as to weigh the twenty-thousandth part of
an ounce. These scales were manufactured by employees of the
Mint, and have been in use more than a quarter of a century. The
beam is hollow, and filled with Spanish cedar to guard against the
effect of dampness; the bearings are edges of knife-blades, which
impinge on a surface of agate plate. These scales are tested by the
Annual Assay Committee, which meets on the second Tuesday in
February of every year.
“Peter,”
the name which the noble bird recognized, was an inhabitant of the
Mint six years. He would fly about the city, but no one interfered with
the going or coming of the “Mint bird,” and he never failed to return
from his daily exercise before the time for closing the building. In an
evil hour he unfortunately perched upon a large fly wheel, and
getting caught in the machinery, received a fatal injury to his wing,
and this ended rather an unusual career for an eagle.
Eastern Corridor.
Opening into the eastern corridor are the rooms of the
Superintendent, the Chief Clerk, and the library of Historical and
Scientific Works, including many valuable books upon the art of
coinage. Passing out upon the gallery, we enter the Machinists’ and
Engravers’ rooms. Here are engraved and finished the dies used in
this Mint and in all the branch mints. Visitors are not ordinarily
allowed access to these rooms, or to the assay office, or to the
cellar. (In the latter are a number of immense vaults, and in the main
cellar are engines, which supply the power and light used throughout
the building.) Here are also blacksmith, carpenter, and paint shops;
and in the rear, west side, is the medal-striking room, where medals
are struck by a screw press, worked by hand. The cellar also
contains the “sweep” grinding rooms. Near this room are the wells,
which are receptacles for the water used in washing the precious
metals. These wells are cleaned out every few years and the deposit
is then treated in the same way as the sweepings.
The little wooden building in the court was formerly the cent-room,
where copper cents were exchanged for nickels;[10] it is now the
office of the agent of the Adams Express Company, who brings to
the Philadelphia Mint millions of dollars worth of precious metals in
the shape of bullion from the far west, to be converted into American
Coin, when it is again transported by the same company to various
points to be put into circulation.
Coins.
The ancient coins are chiefly arranged in upright cases against the
walls in the doorways and the middle section of the saloon. The
modern coins are placed in nearly level cases at either end of the
room and in the circular or central cases. Of antique coins the
portion labeled Cabinet Nos. 97, 98, 99, “Massilia,” are interesting as
belonging to a Greek colony which settled about six hundred years
before Christ upon the coast of Gaul, on the spot now known as
Marseilles. This little colony fled their native country and the rule of a
governor placed over it by a Persian monarch. They were
distinguished for their civilization, and the work upon these small
coins is the most palpable witness of that fact in existence to-day.
Greek Coins.
Their surfaces, of gold, silver, and bronze, bristle with lance and
spear, helmet and shield. On one of these coins Jove is seated and
bearing an eagle, defying Alexander of Macedon, while on the
obverse the same mighty conqueror impersonates Hercules. The
oldest coin here is supposed to date back to 550 b.c. It is well to
mention the fact that coins were never dated until the fifteenth
century; and previous to that time the ages of coins can only be
determined by the legends upon them, as answering to the page of
corroborative history and the art era to which they belonged. No. 9
bears on the obverse the Macedonian horse, a favorite animal,
which the then war-loving Greeks are said to have deified. At this
period the haughty royal families began to chronicle in coin their line
of descent. The kings of Macedon claimed Hercules for an ancestor,
and in proof thereof the lion’s skin was a royal insignia. An old
historian says, “The kings of Macedon, instead of the crown, the
diadem, the purple, bear upon their effigy the skin of a lion.” Several
pieces of money in this case, upon which are heads of Alexander,
have rings in them, and were worn by gracious dames as
ornaments. The value of this series of coins is priceless, as
furnishing portraits of the heroes of that period which can be
received without question as accurate, for the art patronage of the
kingdom was regulated by the strictest laws. Alexander was
especially jealous of how the future nations should regard his
physique, allowing only three artists, during his reign, the privilege of
drawing, painting, or modeling his head.[11] To such royal
guardianship may be attributed the perfection to which Greek art
attained; and it may well be a matter of regret that the same firmness
in this regard was not universal. The last coin of this series is a small
bronze coin, and was issued by Perseus, the last king of Macedon.
Persian.
In this case is a collection of Persian coins, very choice, and of no
mean workmanship, and, of course, portraying the faith and rites of
the fire-worshippers. One era is distinctly Greek in style, and marks
the period of Greek supremacy. The oldest gold coin known to the
collector is the gold Daric of King Darius, with the head of the king in
bold relief; and all Persian coins are so called in remembrance of this
monarch. Their money was very fine, so the word Daric has become
incorporated into numismatic terminology to designate any pure gold
coin. Nos. 58 to 67, inclusive, of this series, are silver coins of the
Sassanian kings.
Egypt
is also represented in this case, as is proper, for that nation had no
coinage until it was taught the art when conquered by Alexander.
Here are some very attractive data of Egyptian history, and from
these coins are obtained the only portraits of Arsinoe, Cleopatra, and
others.
Roman Coins.
The collection of Roman coins in this Cabinet numbers nearly one
thousand, and an acquaintance with it is invaluable for object
teaching, as in it is the condensed history, not only of the glory of
Rome, “Mistress of the World,” but of her customs, faith, conquests,
wealth, culture, divisions, and downfall. Through this entire section of
time—one-third of the known history of the world—Roman art,
though high, never reached the exalted purity of Greek lines. In their
finest coins we see no Phidias, no Myron, no Praxiteles, but they
deteriorate and fluctuate visibly when in or out of contact with the
influence of the Grecian mind.
Greek Republic
will be first in interest, both historic and artistic. It is conceded that to
the Greeks the world owes the introduction of the art of coinage, and
though centuries numbered by tens have passed, some of the old
Greek coins equal many modern productions in purity of lines, and
surpass nearly all in poetic sentiment. On the first coins no earthly
potentate was allowed to be pictured, no deed of heroism portrayed.
The glory of the gods was considered the only appropriate theme for
impressions on the surface of bronze, silver, and gold. The coins of
the republic embrace a large variety, as nearly a thousand towns
were allowed the privilege of coinage. Upon this varied issue are
preserved nearly all the legends of Greek mythology. Upon the coins
are the heads of Jupiter, Juno, Minerva, Bacchus, Apollo, and Diana,
with many sacred animals, and the work is to-day the standard of
artistic perfection. Of course, the collection of this ancient period
cannot be extensive. In this case there are, however, more than one
hundred and fifty specimens, and these present a study so attractive
and so intense that it is almost impossible to imagine what classic
poetry would be without it.
Nos. 4, 5, and 6, are silver coins of Ægina, which have on the
obverse, for a device, the tortoise, emblematic of the security of the
island amid the waves, and the protection of the gods of the sea. On
the reverse are the marks of the punches only, probably denoting the
value of the coins. These are claimed to belong to an era seven
hundred years before Christ. No. 28 is a silver coin of Athens, with a
head of Minerva splendidly drawn upon the obverse, while the
reverse presents a large owl, the bird sacred to the goddess of
Wisdom. The devices upon this coin indicate its age to be from
twenty-one to twenty-three centuries. The Greek proverb of “taking
owls to Athens” referred to this coin, which was necessarily of great
importance to the tradespeople of that city.
Family Coins.
These comprise about one hundred and seventy-five, of which one
hundred and twenty-six are in the collection. They were struck to
record the heroic deeds which first introduced any notable ancestor
to fame, and hence are to-day family charts of respectability for
many of the patricians of Rome, albeit some of them have plebeian
roots. Be that as it may, they are as much the trusted patents of
aristocracy as is the “Book of the Peerage” of England. Here are
found the same distinctions between patrician and plebeian which
mark all countries, the patricians being always designated by a
symbol of warfare, while the plebeians were indicated by the tools
and instruments of common trade. The more noticeable of the coins
are as follows: No. 16, Acilia; the reverse a female leaning against a
pillar, with a serpent clutched in her right hand, indicating the wisdom
or courage of some ancestor. No. 20, Æmilia; on the obverse of this
curious coin is a figure kneeling by the side of a camel, presenting
an olive branch, from which depends a fillet or ancient diadem; on
the reverse, a figure guiding a triumphal chariot, a scorpion in the
field. Josephus tells us of an invasion of Arabia, and that Aretus, the
king of the country, purchased peace of the Romans for five hundred
talents. The diadem hanging from the olive branch chronicles the
entire humiliation of Aretus, and the scorpion doubtless indicates the
month of the Roman triumph. No. 30, Aquillia, a small silver coin; the
reverse shows a woman kneeling before a soldier. The motto below
the figures (or in the exergue of the coin, as is the art term) is “Sicil.”
This commemorates the suppression of a revolt of slaves in Sicily,
which was achieved by Manlius Aquillia. No. 41, Calpurnia, the
family of Cæsar’s noble wife; reverse, a horseman riding at full
speed, a head of wheat above him; legend, L. Piso-Trugi. The coin
recalls the fact that in the year 507 b.c. there was a famine in Rome,
and Calpurnius Piso was dispatched to Africa to buy corn. This
seemingly small service is magnified upon a large number of coins.
Nos. 95 and 96, Hostilia, a coin with a sacrifice to Pallor and Pavor
(fear and trembling), offered by Tullus Hostilius in some great
emergency. No. 97, Julia; obverse, a helmeted head; legend, Cæsar;
reverse, a warrior in a chariot drawn by two horses.
No. 98, Junia; obverse, head of Liberty; reverse, Junius Brutus
guarded by lictors, and preceded by a herald, showing that an
ancestor of Junius Brutus was the first consul of Rome. Nos. 181,
182, Tituria. The reverse shows two soldiers throwing their shields
upon a prostrate female, illustrating the famous story of the “Tarpeian
Rock.” Reverse represents the Romans carrying off Sabine women
—a witness in coin of the fact that the family of Tituria trace their
ancestry from the Sabines. To do justice to this case is impossible,
for here are coins relating to the ancestors of Antonia, Aurelia,
Cornelia, Fulvia, Horatio, Lucretia, Lucilla, Sempronia, Titia Valeria,
and many others familiar to the readers of history.
This era of coins terminated about the time of the birth of Christ,
when the
Imperial Coins
were introduced. In noticing these, little save the labels on the case
can be given.
Division II.
Division III.
Division IV.
Division V.
Division VI.
ORIENTAL.
Oriental coins are not as attractive as other varieties, though there
are special coins among them which have no rival in historic
importance. Antique coins from the East were usually without device,
and, their legends being rudely inscribed in a dead language, proved
frequently to be sealed fountains to the thirsting antiquarian.
Therefore in cases marked “Oriental” the visitor is undetermined
where to begin to study, and often decides to give it but little time.
Those having for device the sacred peacock are from Burmah;
there is, however, in the division marked “Selections” a very curious
coin belonging to that country, which certainly formed a part of its
earliest currency. It is a common gravel-stone, encased in a circling
band of brass.
Coins of Siam.
The coins of Siam are much sought for. Some of them, known to
European travelers as “bullet money,” are lumps of gold or silver,
hammered by rude implements into a doubtful roundness, and a few
Siamese characters stamped irregularly upon them. The sacred
elephant is found on a large proportion of their money. A Siamese
coin in the Cabinet, of modern date, is quite handsome in both
workmanship and design. On the obverse is the sacred elephant in
ponderous proportion, which delights the eyes of the devout, and the
reverse presents a group of three pagodas, finely drawn. In the case
marked “Selections” is a Siamese coin of gold, comparatively
modern, called “Tecal,” corresponding in some respects to the
“Shekel,” or “Oxen,” of biblical fame.
Chinese Coins.
Japan.
Turkey.
Turkish coins often bear texts from the Koran on either side, so it
may be said the tenets of their religion are their circulating medium.
The piastres in this collection are generally those now in circulation.
Egypt.
Egypt’s antique coins were of Greek or Roman workmanship, of
which the very finest is in the case marked “Selections,” and has not
its superior for interest or beauty in the world. It was the work of
some Greek artist, and presents the head of Arsinoe, wife of
Ptolemy. It was found in 1868, and bought by the United States
Government at a high price; but as only three had been found, its
market value may be named by thousands, though its metal value is
not more than twenty dollars.
This notice of Oriental coins may conclude with suggestive
reference to the “Cufic coins,” of which there are some valuable
specimens. The first is the silver dirhem of Walid, the eccentric caliph
of Damascus, a.d. 713. There is also in case XV. a coin of the reign
of Haroun Alraschid.
French Coinage.
The French have the credit of making the greatest improvements
in modern coinage. The French coins are a history of that nation,
from the small coin issued in the reign of Louis “the Meek” to the last
currency of the republic of France, spanning a period of one
thousand years.
In design and execution the French coins bear the impress of the
national character, and also give assurance of the art patronage in
which her rulers, failing in much, have never wavered, but brought all
their power and cunning to bear on securing the best artists, as in
the instance of Francis I. beguiling from the holy father that exquisite
artist Benvenuto Cellini, or the later enterprise of Napoleon
Bonaparte. No. 83,—a medalet of the unhappy Mario Antoinette,—
which is in itself very beautiful, and from its tragic association attracts
general interest.
Germany.
The collection of Germany is very large and divided and sub-
divided by its kingdoms and principalities.
One of the most interesting coins of any age, and excelling in
beauty as well, is the gold medallic ducat on which are the heads of
Martin Luther and Philip Melanchthon. This coin is very generally
admired by visitors to the Cabinet.
Coins of Switzerland.
Switzerland is modestly represented in all her cantons, each, like
the classic Greek town, enjoying the coining privilege. There are
several pieces of commemorative and artistic worth, especially the
two issues of the republic of 1796.
Russian Coins.
The double rouble, with a magnificent draped head of Peter the
Great, is unexcelled for strength of outline, and valuable as a correct
portrait of one of the very greatest and most self-reliant of modern
rulers. Turning to another rouble, the features of Elizabeth II. are
recognized. It may be assumed, with all due deference to royalty,
that this portrayal is the most laughter-provoking figure ever stamped
on metal. She is so fat as to have the effect of “spreading herself” all
over the coin. Another rouble presents the majestic Catherine II.
Of the coins marked Denmark, Norway, Sweden, there can be
only the copper half-daler of Sweden mentioned. This coin is four
inches square, weighs about twelve ounces, and is equivalent to a
United States silver half-dollar. The daler of Sweden, thaler of
Germany, dollar of Spain and America, are all synonymous terms.
England.
The first coins of Great Britain were of tin, according to Cæsar’s
authority, who mentions the “tin money of Britain,” which has lately
been sustained by the discovery, in some work of excavation, of
coins of that metal in antique design. These coins are, however, of
little use, by reason of the obscure inscription, or rather the frequent
absence of all device.
The English collection in the Cabinet begins with a coin made after
the stater of Greece, presenting the head of Minerva, with Greek
helmet on obverse, while the reverse gives the figure of a woman
most crudely drawn. It is supposed this rude attempt at art was
coined about the time of the Roman invasion. Note the contrast
presented in placing this relic by the side of the Victorian sovereign,
where, on the obverse, is the queen’s head superbly cut; on the
reverse, Wyon’s inimitable figure of Una and the Lion. These two
coins are the Alpha and the Omega of British coinage, while the
thousands issued between them are progressive links to civilization.
Two small coins are placed here, thought to be contemporary with
the Christian era, having no device, but an attempt to portray the sun
on one side. No. 2 is the skeattae of Ethelbert I, king of Saxony, and
is the first Saxon coin which has yet been appropriated. It bears
upon the obverse the head of the king; on the reverse is the figure of
a bird.
Next in interest is No. 6, the penny of William the Conqueror. The
bust of that famous monarch is attempted; 1068 is about the year it
is supposed to have been made. During the three centuries
following, the condition of England, whether she was at peace or
war, is plainly indicated by her coinage. Every added province is
memorialized in coin. The rose, thistle, and fleur-de-lis, all tell in
strange language for flowers of bloody battles, long sieges, perils by
the sea and land; at last all resistance bowing before the ever-
increasing power of Great Britain.
The first coin of English issue was dated in 1553, being either the
close of Edward VI.’s or the beginning of Queen Mary’s reign. This is
claimed by many to be the first coin dated, though old medals of the
preceding century have been found with date.
In 1558, the ryal or royal of Queen Elizabeth was issued. On the
obverse the queen is grandly enthroned, while the reverse is a large
rose, in the centre of which are the Danish arms of Britain, and the
arms of Anjou quartered. This coin and the pound sterling of Charles
I. are in Case XV., “Selections.”
This pound sterling is one of the famous “siege pieces” of that
unhappy king,—which were often made on the field with hammer
and anvil out of the family plate brought to the closely-pressed Stuart
by his faithful followers. It is to be regretted that so much valuable
family plate of no mean workmanship was thus sacrificed. This
“siege piece” is the largest silver coin known. The legend upon it,
rudely inscribed, is, “Let God arise; let his enemies be scattered;”
above are three fleurs-de-lis, with date, “1642.”
In 1684-88, during the short reign of James II., several varieties of
new coins were introduced, notably, “Maundy Money,” a small coin
made to be distributed by the king on “Maundy Thursday.” Beggars,
on that day, received from his majesty bags containing as many
maundy pieces as the king had lived years.
King James II. also had issued “gun money.” This variety was
made out of old cannon, after the suppression of an Irish rebellion.
Though not even giving a glance towards the interesting series of
Queen Anne, it is impossible to pass unnoticed the beautiful bust of
George IV., by Chantrey, upon a pattern five-sovereign piece. This
well-executed bust of “the handsomest man in Europe,” was said to
be the means of Sir Francis Chantrey being knighted. That vain
monarch was as careful about how his face would appear to future
generations as was Alexander of Macedon; and Chantrey well knew
if he placed upon the shoulders of sixty years the head of forty years,
he had given the cabalistic words which would be the “open sesame”
to royal favor.
The gold sovereign of Victoria, Nos. 183-184, has, on the reverse,
an evidence of coins as a deposit of law archives. The shield
surrounded by a crown, and bearing the arms of Great Britain
quartered; but the arms of Hanover are omitted. Although Victoria
was next heir to William IV., she was prevented by the Salic law from
assuming the sceptre of Hanover. On this coin, it may be
remembered, are very beautifully presented the rose, the thistle, and
the shamrock.
A recent addition has been made to the Mint Cabinet of a very fine
sovereign of the times of Oliver Cromwell, purchased at the coin sale
of May 14 and 15, 1885.
Scotch moneys of any variety, are very much prized by collectors
(see, in Case XV., “Selections,” “Groat of Robert Bruce, 1602.”) A
very rare coin is the penny of Robert II. of Scotland, said to be the
only specimen in existence of that monarch’s reign. In the
seventeenth century the coinage of Scotland merged into that of
England.
Mexico.
The Mexicans use only gold and silver, and their national series is
full of tragic interest, embracing, as it does, three and a half
centuries of Mexican history, from Cortez to Maximilian. The “pillar
dollar,” “windmill dollar,” “cast dollar” (the Mexicans are the only
nation that cast money), and the “cob money” (a series so called by
reason of its clumsiness), are all to be seen in this collection.
Coins of Brazil.
One coin, a gold “half-joe,” issued in 1832, with the infant head of
Dom Pedro, is very beautiful. By the side of this, in every way a
contrast to it, is a series of copper coins of a late issue with the head
of the “child” now seated on the throne. The coins of Bolivia proudly