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- Publisher Website: 10.1016/j.ijindorg.2014.08.004
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Article: On the role of verifiability and commitment in credence goods markets
Title | On the role of verifiability and commitment in credence goods markets |
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Authors | |
Keywords | Verifiability Efficiency Credence goods Commitment |
Issue Date | 2014 |
Citation | International Journal of Industrial Organization, 2014, v. 37, p. 118-129 How to Cite? |
Abstract | © 2014 Elsevier B.V. All rights reserved. A client has a problem, but does not know whether it is serious or minor. She consults an expert who can correctly diagnose and fix her problem. This paper characterizes the equilibrium pricing and recommendation strategies of an expert under the assumptions that i) the type of treatment is verifiable by the client, ii) the client has the option of rejecting any treatment recommendation, and iii) the expert is not liable for the outcome of the treatment. It is found, for any parameter configuration, that there exist equilibria in which the expert makes fraudulent recommendations resulting in inefficient treatment. The market outcome is compared with that under an alternative market environment in which the expert is liable for treatment outcome but the type of treatment performed is non-verifiable. It is shown that for some parameter configurations the equilibrium is more efficient when liability is in place than when the treatment is verifiable. These findings stand in sharp contrast to the received wisdom that the market outcome under verifiability of treatment is efficient while the market outcome under liability for outcome is not. Finally, this paper shows that the existence of some honest experts may induce more fraudulent behavior by opportunistic experts. |
Persistent Identifier | http://hdl.handle.net/10722/269724 |
ISSN | 2023 Impact Factor: 1.7 2023 SCImago Journal Rankings: 1.036 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Fong, Yuk Fai | - |
dc.contributor.author | Liu, Ting | - |
dc.contributor.author | Wright, Donald J. | - |
dc.date.accessioned | 2019-04-30T01:49:24Z | - |
dc.date.available | 2019-04-30T01:49:24Z | - |
dc.date.issued | 2014 | - |
dc.identifier.citation | International Journal of Industrial Organization, 2014, v. 37, p. 118-129 | - |
dc.identifier.issn | 0167-7187 | - |
dc.identifier.uri | http://hdl.handle.net/10722/269724 | - |
dc.description.abstract | © 2014 Elsevier B.V. All rights reserved. A client has a problem, but does not know whether it is serious or minor. She consults an expert who can correctly diagnose and fix her problem. This paper characterizes the equilibrium pricing and recommendation strategies of an expert under the assumptions that i) the type of treatment is verifiable by the client, ii) the client has the option of rejecting any treatment recommendation, and iii) the expert is not liable for the outcome of the treatment. It is found, for any parameter configuration, that there exist equilibria in which the expert makes fraudulent recommendations resulting in inefficient treatment. The market outcome is compared with that under an alternative market environment in which the expert is liable for treatment outcome but the type of treatment performed is non-verifiable. It is shown that for some parameter configurations the equilibrium is more efficient when liability is in place than when the treatment is verifiable. These findings stand in sharp contrast to the received wisdom that the market outcome under verifiability of treatment is efficient while the market outcome under liability for outcome is not. Finally, this paper shows that the existence of some honest experts may induce more fraudulent behavior by opportunistic experts. | - |
dc.language | eng | - |
dc.relation.ispartof | International Journal of Industrial Organization | - |
dc.subject | Verifiability | - |
dc.subject | Efficiency | - |
dc.subject | Credence goods | - |
dc.subject | Commitment | - |
dc.title | On the role of verifiability and commitment in credence goods markets | - |
dc.type | Article | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1016/j.ijindorg.2014.08.004 | - |
dc.identifier.scopus | eid_2-s2.0-84908599264 | - |
dc.identifier.volume | 37 | - |
dc.identifier.spage | 118 | - |
dc.identifier.epage | 129 | - |
dc.identifier.isi | WOS:000347603800011 | - |
dc.identifier.issnl | 0167-7187 | - |