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The Good, the Bad and the Naive: Do Fair Prices Signal Good Types or Do They Induce Good Behaviour?

  • Dulleck, Uwe

    ()

    (Queensland University of Technology)

  • Johnston, David W.

    ()

    (Monash University)

  • Kerschbamer, Rudolf

    ()

    (University of Innsbruck)

  • Sutter, Matthias

    ()

    (University of Cologne)

Evidence on behavior of experts in credence goods markets raises an important causality issue: Do "fair prices" induce "good behavior", or do "good experts" post "fair prices"? To answer this question we propose and test a model with three seller types: "the good" choose fair prices and behave consumer-friendly; "the bad" mimic the good types' price-setting, but cheat on quality; and "the naive" fall victim to a projection bias that all sellers behave like the bad types. OLS, sample selection and fixed effects regressions support the model's predictions and show that causality goes from good experts to fair prices.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6491.

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Length: 27 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6491
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