We actually have a data point: this is exactly what happened during the financial crisis, when ratings agencies sold fraudulent ratings on mortgage-backed securities. There is no way to structure a compensation structure so that reliable ratings information can be provided on the open market because there is no way to restrict the flow of information only to those customers who have paid for it. Perverse incentives of some form are thus inevitable.
See ratings agencies during the financial crisis. They are the perfect example for private organizations that should have uncovered problems but instead were corrupt. Of course hardcore libertarians will say that they didn't do it right....
I assume they would be? If a store stocks two "Aloe Vera" products, and one has the seal from the private organization, then customers will know that the private organization vouches for the product with the seal.
The theory is that if the seal adds value to the product insofar as it accurately assesses some quality or standard of the product.
Why wouldn't a company just lie about having the seal? Or a slightly modified one if there is still remnants of trademark law in our libertarian thought experiment.
But it seems like the extent that copyright/trademark law is needed is still under debate. I think there's an argument that if you can own a parcel of land legally, you can probably own some data you produced, but there should be consideration for things like expiration date so it enters the public domain eventually.
They are, but would engender less trust than if the government had approved it. Ergo, more critical review of their approvals / marketing.
For consumer goods, companies would hold each other accountable- no company would advertise "X approved" once X was discovered to commit fraud or otherwise misrepresent their reviews.
As for sibling comments on ratings agencies, I disagree.
On the one hand, ratings agencies alone were not solely to blame; though they were ill equipped to understand the complexity of the new structures. As a result, the big three settled at least 14 lawsuits, suffered stock losses and other harms.
Tell me, what can you do when the government fails? You can't sue the EPA when their inspectors accidentally cause a slurry retention pond to spill massive amounts of toxic waste. You can't sue the FDA when their safety inspections fail to catch conditions which allow spoilage and food poisoning. You can't sue the FDA when lobbyists push through unsafe medications.
Guess who you can sue for damages? Private organisations (until the government interferes even more by declaring them too big to fail)
>Many of the environmental statutes that govern EPA actions contain provisions that allow citizens to sue EPA when EPA fails to perform an act or duty required by the statue.
Right now there's a few lawsuits against the FDA to try to prevent them from regulating e-cigs.
I'll admit my examples were poor, but both of those you cited are apples to oranges comparisons.
First, the lawsuits against the FDA are for over extending their regulatory reach, not for incorrectly asserting the qualities of a product.
The note on the EPA is likewise allowing suits when it fails to act, not when it causes harm by acting. Even the Navajo lawsuit over the golden kings mine incident is based on years of neglectful oversight. The gold king mine corporation and some contractors are being named in the lawsuit for the actual damages.
Edit: for what it's worth, I'm not personally in favor of ending ALL regulation in favor of creating a market for ratings companies; there are plenty of places in the economy where it wouldn't work as well as others. I'm merely playing devil's advocate, since the question was asked. The best places for this sort of thinking are really limited to consumer goods, if that.
