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Credence Goods Markets with Conscientious and Selfish Experts

  • Liu, Ting
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I study credence goods markets when there are both selfish and conscientious experts. The selfish expert is a profit maximizer. The conscientious expert wants to maximize profit and repair the consumer's problem. There are two classes of equilibria: uniform-price equilibria and nonuniform-price equilibria. A consumer cannot infer the expert's type from his price list in a uniform-price equilibrium but can do that in a nonuniform-price equilibrium. When the fraction of the conscientious expert is small, the selfish expert will be honest about the severity of the consumer's problem. When the fraction of the conscientious expert is large, the selfish expert will cheat the consumer; overcharging the consumer whenever he offers to repair the problem. Finally, more conscientious experts may result in a larger social loss. When the fraction of the conscientious expert is close to one of the two extremes, 0 and 1, more conscientious experts will result in smaller social loss. When the fraction of the conscientious expert is in a middle range, more conscientious experts may result in a larger social loss.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1107.

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Date of creation: 08 Dec 2006
Date of revision: 10 Sep 0007
Handle: RePEc:pra:mprapa:1107
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  1. 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.
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  9. Lindbeck, Assar & Weibull, Jorgen W, 1988. "Altruism and Time Consistency: The Economics of Fait Accompli," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1165-82, December.
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  11. Ingela Alger & François Salanié, 2006. "A Theory of Fraud and Overtreatment in Experts Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 853-881, December.
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