Consumer information in a market for expert services
AbstractWe present a model of credence goods in which the consumers are heterogenous in terms of the valuation they place for getting a serious problem fixed. We introduce consumer information into this framework by assuming that, prior to visiting an expert, some consumers receive an information signal about whether they have a serious or a minor problem. We show that when the fraction of consumers with low willingness to pay is sufficiently high, the expert does not cheat any low valuation consumer regardless of their information status, but cheats the high valuation consumers: those high-valuation consumers with bad signals are the most frequent victims of cheating, whereas those with good signals are the least likely victims. When the fraction of consumers with low willingness to pay is below a certain threshold, however, the unique equilibrium involves no cheating.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 80 (2011)
Issue (Month): 3 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/jebo
Credence goods; Expert cheating; Consumer information;
Other versions of this item:
- Kyle Hyndman & Saltuk Ozerturk, 2008. "Consumer Information in a Market for Expert Services," Departmental Working Papers 0801, Southern Methodist University, Department of Economics.
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wolfgang Pesendorfer & Asher Wolinsky, 2000.
"Second Opinions and Price Competition: Inefficiency in the Market for Expert Advice,"
1306, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Wolfgang Pesendorfer & Asher Wolinsky, 2003. "Second Opinions and Price Competition: Inefficiency in the Market for Expert Advice," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 417-437, 04.
- W. Pesendorfer & A. Wolinsky, 2000. "Second Opinions and Price Competition: Inefficiency in the Market for Expert Advice," Princeton Economic Theory Papers 00s18, Economics Department, Princeton University.
- Wolfgang Pesendorfer & Asher Wolinsky, 1998. "Second Opinions and Price Competition Inefficiency in the Market for Expert Advice," Discussion Papers 1229, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
- Winand Emons, 1997.
"Credence Goods and Fraudelent Experts,"
RAND Journal of Economics,
The RAND Corporation, vol. 28(1), pages 107-119, Spring.
- Dranove, David, 1988. "Demand Inducement and the Physician/Patient Relationship," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 281-98, April.
- Emons, Winand, 1997.
"Credence Goods Monopolists,"
Berkeley Olin Program in Law & Economics, Working Paper Series
qt9c5508x4, Berkeley Olin Program in Law & Economics.
- Ingela Alger & Francois Salanie, 2001. "A Theory of Fraud and Over-Consumption in Experts Markets," Boston College Working Papers in Economics 495, Boston College Department of Economics, revised 09 Nov 2004.
- Kai Sülzle & Achim Wambach, 2005.
"Insurance in a Market for Credence Goods,"
Journal of Risk & Insurance,
The American Risk and Insurance Association, vol. 72(1), pages 159-176.
- Pitchik, Carolyn & Schotter, Andrew, 1987. "Honesty in a Model of Strategic Information Transmission," American Economic Review, American Economic Association, vol. 77(5), pages 1032-36, December.
- Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.