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Credence Goods Markets with Conscientious and Selfish Experts

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  • Ting Liu

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    (Boston University, Department of Economics)

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Abstract

I study credence goods markets when there are both sel sh and conscientious experts. The selfish expert is a pro t maximizer. The conscientious expert wants to maximize pro t and repair the consumer's problem. There are two classes of equilibria: uniform-price equilibria and nonuniform-price equilibria. A consumer cannot infer the expert's type from his price list in a uniform-price equilibrium but can do that in a nonuniform-price equilibrium. When the fraction of the conscientious expert is small, the sel sh expert will be honest about the severity of the consumer's problem. When the fraction of the conscientious expert is large, the sel sh expert will cheat the consumer; overcharging the consumer whenever he o ers to repair the problem. Finally, more conscientious experts may result in a larger social loss.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-058.

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Length: 33 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:bos:wpaper:wp2006-058

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References

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  1. Ingela Alger & Ching-to Albert Ma, 2001. "Moral Hazard, Insurance, and Some Collusion," Boston College Working Papers in Economics 496, Boston College Department of Economics.
  2. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
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  4. Asher Wolinsky, 1991. "Competition in a Market for Informed Experts' Services," Discussion Papers 959, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  8. Winand Emons, 1994. "Credence Goods and Fraudulent Experts," Diskussionsschriften dp9402, Universitaet Bern, Departement Volkswirtschaft.
  9. Ingela Alger & Regis Renault, 2003. "Screening Ethics when Honest Agents Keep their Word," Boston College Working Papers in Economics 562, Boston College Department of Economics, revised 09 Nov 2004.
  10. 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.
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  12. Yuk-fai Fong, 2005. "When Do Experts Cheat and Whom Do They Target?," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 113-130, Spring.
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Cited by:
  1. Uwe Dulleck & Rudolf Kerschbamer, 2005. "Experts vs. discounters: consumer free riding and experts withholding advice in markets for credence goods," Economics working papers 2005-09, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, University of Innsbruck.

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