The Incidence of Coarse Certification: Evidence From the ENERGY STAR Program

ABSTRACT A coarse certification provides simple but incomplete information. Its rationale is to help consumers trade off dimensions of quality that are complex and lack salience. In imperfectly competitive markets, it may induce excess bunching at the certification requirement, crowd out quality, and facilitate price discrimination. Who will ultimately benefit from a coarse certification thus depends on the degree of market power firms can exercise as well as on consumers' sophistication in responding to such information. I use a structural econometric model of the U.S. appliance market to illustrate these insights using the ENERGY STAR certification as a case study.