AbstractWe examine an economy where professionals provide services to clients and where a professional can sell his practice to another. Professionals vary in quality, and clients in their need (or willingness-to-pay) for high-quality service. efficiency is measured as the number of matches between high-quality professionals and high-need clients. However, agent types are unobservable a priori. We find that trade in practices can facilitate the transmission of information about agent types; sometimes full efficiency is achieved. In cases where it is not, a tax on the sale of practices (based on the seller's age) can be used to achieve full efficiency. In addition, a ceiling on the price of services can be used to adjust the distribution of surplus between clients and professionals, while preserving efficiency.
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Date of creation: Jun 2008
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signaling; professional services; practices; goodwill;
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