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Information Acquisition, Referral, and Organization

Listed author(s):
  • Simona Grassi

    ()

    (Universite de Lausanne)

  • Ching-To Albert Ma

    ()

    (Boston University)

Each of two experts may provide a service to a client. Experts' cost comparative advantage depends on an unknown state, but an expert may exert effort to get a private signal about it. In a market, an expert may refer the client to the other for a fee. In equilibrium, only one expert exerts e§ort and refers, and the equilibrium allocation is ine¢ cient. Referral efficiency can be restored when experts form an organization, in which a referring expert must bear the referred expert's cost. However, the referred expert shirks from work effort because of the lack of cost responsibility.

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File URL: http://people.bu.edu/ma/acquisition.pdf
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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number wp2015-007.

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Date of creation: Oct 2015
Handle: RePEc:bos:wpaper:wp2015-007
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