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Billing Abuses by the Experts: A Game-Theoretic Analysis of Legal Services

  • Chris Kuo

    ()

    (School of Management, Boston University, U.S.A.)

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    Billing abuses exist when an expert charges the expert hourly rate but offers quality that does not match the charge. This paper provides a game-theoretic analysis so that, when the quality of an expert's services is unobservable to consumers before purchase, hourly rate competition can eliminate the profits necessary to induce the expert to offer the quality services. This paper further demonstrates that the threat of business termination by customers is not sufficiently credible to ensure that the experts will produce high quality services. Given the fact that billing abuses always exist, this paper suggests that auditing by the customers is necessary to reduce the overcharged amount, and customers have to audit a high percentage of the billed amount.

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    File URL: http://www.jem.org.tw/content/pdf/Vol.9No.1/02.pdf
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    Article provided by College of Business, Feng Chia University, Taiwan in its journal Journal of Economics and Management.

    Volume (Year): 9 (2013)
    Issue (Month): 1 (January)
    Pages: 13-30

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    Handle: RePEc:jec:journl:v:9:y:2013:i:1:p:13-30
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    Web page: http://www.jem.org.tw/

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    1. Ting Liu, 2011. "Credence Goods Markets With Conscientious And Selfish Experts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 227-244, 02.
    2. 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.
    3. Pitchik, Carolyn & Schotter, Andrew, 1987. "Honesty in a Model of Strategic Information Transmission," American Economic Review, American Economic Association, vol. 77(5), pages 1032-36, December.
    4. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
    5. McCluskey, Jill J., 1999. "A Game Theoretic Approach to Organic Foods: An Analysis of Asymmetric Information and Policy," 2000 Conference (44th), January 23-25, 2000, Sydney, Australia 123706, Australian Agricultural and Resource Economics Society.
    6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
    7. Rachel E. Kranton, 2003. "Competition and the Incentive to Produce High Quality," Economica, London School of Economics and Political Science, vol. 70(279), pages 385-404, 08.
    8. Nuno Garoupa & Fernando Gómez, 2002. "Cashing by the hour: Why large law firms prefer hourly fees over contingent fees," Economics Working Papers 639, Department of Economics and Business, Universitat Pompeu Fabra.
    9. Johnston, Jason Scott & Waldfogel, Joel, 2002. "Does Repeat Play Elicit Cooperation? Evidence from Federal Civil Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages 39-60, January.
    10. Alexander Frankel & Michael Schwarz, 2009. "Experts and Their Records," NBER Working Papers 14921, National Bureau of Economic Research, Inc.
    11. Paul Pecorino & Mark Van Boening, 2010. "Fairness in an Embedded Ultimatum Game," Journal of Law and Economics, University of Chicago Press, vol. 53(2), pages 263-287, 05.
    12. Fernando Gomez-Pomar, 2008. "Cashing by the Hour: Why Large Law Firms Prefer Hourly Fees over Contingent Fees," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(2), pages 458-475, October.
    13. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
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