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Why Don't People Trust Experts?

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  • Nathaniel G. Hilger

Abstract

Credence goods such as health care, legal and financial services, and auto repair create a conflict of interest by requiring experts to diagnose and provide services to uninformed consumers. Mistreatment of consumers appears widespread empirically, but a simple explanation for mistreatment under realistic assumptions has proved elusive. I generalize Uwe Dulleck and Rudolf Kerschbamer's credence-good model to incorporate the highly realistic assumption that consumers do not observe experts' cost functions. The model guarantees equilibrium mistreatment in a wide range of price-setting and market environments. The model also yields testable implications regarding the nature of mistreating firms and the direction of mistreatment.

Suggested Citation

  • Nathaniel G. Hilger, 2016. "Why Don't People Trust Experts?," Journal of Law and Economics, University of Chicago Press, vol. 59(2), pages 293-311.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/687076
    DOI: 10.1086/687076
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    Cited by:

    1. Ronayne, David & Sgroi, Daniel, 2018. "When Good Advice is Ignored: The Role of Envy and Stubbornness," The Warwick Economics Research Paper Series (TWERPS) 1150, University of Warwick, Department of Economics.
    2. Marc Dreyer & Luc Chefneux & Anne Goldberg & Joachim Von Heimburg & Norberto Patrignani & Monica Schofield & Chris Shilling, 2017. "Responsible Innovation: A Complementary View from Industry with Proposals for Bridging Different Perspectives," Sustainability, MDPI, vol. 9(10), pages 1-25, September.
    3. Helmut Bester & Matthias Dahm, 2018. "Credence Goods, Costly Diagnosis and Subjective Evaluation," Economic Journal, Royal Economic Society, vol. 128(611), pages 1367-1394, June.
    4. Chen, Yongmin & Li, Jianpei & Zhang, Jin, 2017. "Liability in Markets for Credence Goods," MPRA Paper 80206, University Library of Munich, Germany.
    5. Fang Liu & Alexander Rasch & Marco Alexander Schwarz & Christian Waibel, 2020. "The Role of Diagnostic Ability in Markets for Expert Services," CESifo Working Paper Series 8704, CESifo.
    6. Bester, Helmut & Ouyang, Yaofu, 2018. "Optimal procurement of a credence good under limited liability," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 96-129.
    7. Li, Jianpei & Ouyang, Yaofu, 2016. "Expert Costs and the Role of Verifiability," MPRA Paper 74390, University Library of Munich, Germany.
    8. Ronayne, David & Sgroi, Daniel, 2018. "Ignoring Good Advice," CAGE Online Working Paper Series 359, Competitive Advantage in the Global Economy (CAGE).
    9. Martin Obradovits & Philipp Plaickner, 2020. "Searching for Treatment," Working Papers 2020-18, Faculty of Economics and Statistics, Universität Innsbruck.

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