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Abstract
We study firm reputation as a mechanism to assure product quality in perfectly competitive markets
in a context in which both certification and trademarks are available. Shapiro’s (1983) model of
reputation is extended to reflect both collective and firm-specific reputations, and this framework is
used to study certification and trademarks for food products with a regional identity, known as
geographical indications (GIs). Our model yields two primary results. First, in markets with
asymmetric information and moral hazard problems, credible certification schemes reduce the cost
of establishing reputation and lead to welfare gains compared to a situation in which only private
trademarks are available. Hence, certification improves the ability of reputation to operate as a
mechanism for assuring quality. Second, the actual design of the certification scheme plays an
important role in mitigating informational problems. From a policy perspective, our results have
implications for the current debate and negotiations on GIs at the World Trade Organization and
the ongoing product quality policy reform within the European Union. With regard to the
instrument of choice to provide intellectual property protection for GIs, our model favors a sui
generis scheme based on appellations over certification marks. Finally, our model supports the validity
of the traditional specialities guaranteed scheme of the European Union as an instrument for the
provision of high-quality products that are not linked to a geographic area.