Inspection in Markets for Experience Goods ∗ Omer Moav  and Zvika Neeman  January 7, 2003 Preliminary and Incomplete Abstract We consider a simple dynamic collective reputation model of a market for an expericence good into which we introduce imperfect quality inspections. In each period two markets operate: a market for sellers who have been honest in the past, and a market for sellers who have been dishonest in the past. In every period, the quality of produced goods is inspected, and those sellers who have been found to produce low quality goods are barred from trading in the market for honest sellers in the next period. We demonstrate that the average quality in both markets may plausibly decrease as the probability with which low quality is detected increases. A few implications of our results are discussed. Jel Classification numbers: Keywords: collective reputation, certication, inspection, standards, enforce- ment. ∗ Acknowledgements to be added.  Department of Ecnonomics, the Hebrew University of Jerusalem, Jerusalem, Israel 91905. Email msmoav@mscc.huji.ac.il, WWW http://economics.huji.ac.il/facultye/moav/moav.html  Department of Ecnonomics, Boston University, 270 Bay State Road, Boston MA 02215, The Center for the Study of Rationality and the Department of Economics, the Hebrew University of Jerusalem, Jerusalem, Israel 91904. Email zvika@BU.edu, WWW http://people.bu.edu/zvika/.