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Reciprocity and gift exchange in markets for credence goods

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  • Serhiy Kandul
  • Bruno Lanz
  • Evert Reins

Abstract

We study the role of reciprocity in markets where expert-sellers have more information about the severity of a problem faced by a consumer. We employ a standard experimental credence goods market to introduce the possibility for consumers to gift the expert-seller before the diagnostic, where the gift is either transferred unconditionally or conditionally on solving the problem. We find that both types of gift reduce undertreatment, whereas unconditional gifts also reduce overcharging and increase undercharging, suggesting that unconditional gifts are perceived as more kind. For high-severity consumers gifting reduces market inefficiencies, although the presence of low-severity consumers mitigates overall efficiency gains.

Suggested Citation

  • Serhiy Kandul & Bruno Lanz & Evert Reins, 2020. "Reciprocity and gift exchange in markets for credence goods," IRENE Working Papers 20-09, IRENE Institute of Economic Research.
  • Handle: RePEc:irn:wpaper:20-09
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    More about this item

    Keywords

    Credence Goods; Gift Exchange; Asymmetric Information; Lab Experiment.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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