Hard information design

Many transactions in the marketplace rely on hard (or verifiable) information about the underlying value of the intended exchange, typically through certification--- housing, diamonds, bonds being cases in point. What is the class of Pareto efficient certifications for such scenarios? This paper studies the canonical monopolistic screening problem, and models certification as hard information produced through a test to be flexibly chosen pre-trade. It argues that Pareto efficient tests take a simple form---they produce certification with a partitional structure, often with one or two thresholds. This claim is shown to be true for both the linear trading model and the non-linear pricing model