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Credence goods, experts and risk aversion

Author

Listed:
  • Bonroy, O.
  • Lemarié, S.
  • Tropéano, J.P.

Abstract

The existing literature in expert-customer relationship concludes that when: i) consumers are homogenous, ii) consumers are committed with an an expert once this one made a recommendation, and iii) the type of treatment provided is verifiable, an expert finds optimal to serve efficiently his customers. This work shows that the previous result may not occur when consumers are not risk-neutral. Our result, that holds in a monopoly setting and under Bertrand competition, suggests that risk averse consumers have more likely to be mistreated by experts.

Suggested Citation

  • Bonroy, O. & Lemarié, S. & Tropéano, J.P., 2010. "Credence goods, experts and risk aversion," Working Papers 201005, Grenoble Applied Economics Laboratory (GAEL).
  • Handle: RePEc:gbl:wpaper:201005
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    File URL: https://gael.univ-grenoble-alpes.fr/sites/gael/files/doc-recherche/WP/A2010/gael2010-05.pdf
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    References listed on IDEAS

    as
    1. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
    2. Dulleck, Uwe & Kerschbamer, Rudolf, 2009. "Experts vs. discounters: Consumer free-riding and experts withholding advice in markets for credence goods," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 15-23, January.
    3. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
    4. Kai Sülzle & Achim Wambach, 2005. "Insurance in a Market for Credence Goods," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(1), pages 159-176.
    5. Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2011. "The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition," American Economic Review, American Economic Association, vol. 101(2), pages 526-555, April.
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    Citations

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    Cited by:

    1. Helmut Bester & Matthias Dahm, 2014. "Credence Goods, Costly Diagnosis, and Subjective Evaluation," Discussion Papers 2014-13, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Bartke, Stephan, 2015. "The economic role of valuers in real property markets," UFZ Discussion Papers 13/2015, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    3. Ouyang, Yaofu, 2016. "Credence Goods, Risk Averse, and Optimal Insurance," MPRA Paper 70392, University Library of Munich, Germany.
    4. Schneider, Tim & Bizer, Kilian, 2017. "Expert qualification in markets for expert services: A Sisyphean Task?," Center for European, Governance and Economic Development Research Discussion Papers 323, University of Goettingen, Department of Economics.
    5. Schneider, Tim & Bizer, Kilian, 2017. "Effects of qualification in expert markets with price competition and endogenous verifiability," Center for European, Governance and Economic Development Research Discussion Papers 317, University of Goettingen, Department of Economics.
    6. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, University of Innsbruck.
    7. Schneider, Tim & Bizer, Kilian, 2017. "Building trust by qualification in a market for expert services," Center for European, Governance and Economic Development Research Discussion Papers 309, University of Goettingen, Department of Economics.
    8. Schneider, Tim & Meub, Lukas & Bizer, Kilian, 2016. "Consumer information in a market for expert services: Experimental evidence," Center for European, Governance and Economic Development Research Discussion Papers 285, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    CREDENCE GOODS; EXPERT SERVICES; RISK AVERSION;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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