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On Doctors, Mechanics and Computer Specialists. Or Where are the Problems with Credence Goods?

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  • Dulleck, Uwe
  • Kerschbamer, Rudolf

Abstract

In recent years various contributions have analyzed the credence goods problem under a wide variety of assumptions yielding equilibria exhibiting various degrees of inefficiencies and fraud. The variety of results has fostered the impression that the equilibrium behaviour of experts and consumers in credence goods markets sensitively depends on the details of the models. The present Paper shows that the results for the majority of the specified models can be reproduced in a very simple unifying framework. Our model is constructed so that an efficient solution is reached if a small number of critical assumptions are satisfied, and virtually all existing results on inefficiencies in the credence good market are obtained by relaxing one of these conditions. Existing results are generalized, some previous interpretations of the forces leading to the striking differences in outcomes are questioned, and a new source for inefficiencies is identified.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3016.

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Date of creation: Oct 2001
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Handle: RePEc:cpr:ceprdp:3016

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Keywords: credence goods; experts; fraud;

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References

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  1. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
  2. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
  3. Wolfgang Pesendorfer & Asher Wolinsky, 1998. "Second Opinions and Price Competition Inefficiency in the Market for Expert Advice," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1229, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 16(1), pages 67-88, April.
  5. Winand Emons, 1995. "Credence Goods Monopolists," Diskussionsschriften, Universitaet Bern, Departement Volkswirtschaft dp9501, Universitaet Bern, Departement Volkswirtschaft.
  6. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(1), pages 53-74, February.
  7. Asher Wolinsky, 1994. "Competition in Markets for Credence Goods," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1099, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Carolyn Pitchik & Andrew Schotter, 1993. "Information Transmission in Regulated Markets," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 815-29, November.
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Cited by:
  1. Dulleck, Uwe & Kerschbamer, Rudolf, 2003. "Price Discrimination in Markets for Experts' Services," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4155, C.E.P.R. Discussion Papers.
  2. Anna Merino, 2003. "Demand for pharmaceutical drugs: A choice modelling experiment," Economics Working Papers 704, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Anna Merino, 2003. "Demand for pharmaceutical drugs: A choice modelling experiment," Working Papers, Research Center on Health and Economics, Department of Economics and Business, Universitat Pompeu Fabra 704, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Thomas Liebi, 2002. "Trusting Labels: A Matter of Numbers?," Diskussionsschriften, Universitaet Bern, Departement Volkswirtschaft dp0201, Universitaet Bern, Departement Volkswirtschaft.

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