Information disclosure in expert's market with diagnostic uncertainty

This paper examines a market where consumers rely on the diagnostic skills of the expert to make purchasing decisions while uncertain about the expert's skill levels. Low-skilled expert may diagnose a serious problem to be minor. Imperfect information can incentivize the low-skilled expert to overtreat consumers by recommending more costly treatments than their diagnoses warrant. We find that the frequency of overtreatment can be non-monotonic in market beliefs regarding diagnostic skill. Information disclosure regarding expert's ability can improve social welfare. Optimal amount of information disclosure can exhibit a non-monotonic relationship with the low-skilled expert's diagnosing precision: Perfect disclosure is optimal when the low-skilled expert's diagnostic errors occur either very frequently or very rarely. However, partial disclosure may be optimal in intermediate cases. Our findings remain robust when the low-skilled expert symmetrically misdiagnoses minor and serious problems.