Quality Certification and Market Transparency with Decentralized Information Management

This paper studies how decentralized information management affects asset quality uncertainty and consumer welfare. We show that quality certification improves transparency but has a non-monotonic impact on trading activity and the fee for certification. Thus, when a single agent serves as a centralized quality certifier, she has an incentive to leave the market opaque even if the resolution of uncertainty increases consumer welfare. By contrast, in a decentralized system, record keepers competitively determine the reliability of quality certification. Each record keeper does not incorporate the impact of her monitoring on the general equilibrium transparency, as well as the non-monotonic reaction of the fee revenue. Thus, it may outperform the centralized counterpart in terms of consumer welfare. As a leading example, we apply our discussions to the blockchain economy and derive its implications for the cryptocurrency price and the total hash rate