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A Learning Theory of Referrals

  • Damien S Eldridge

    ()

    (School of Economics, La Trobe University)

Many service industries, including the medical and legal professions in some countries, display a gated structure. Rather than approaching a final producer directly, a consumer will first seek a referral from an intermediary. Such an industry structure might help to alleviate adverse selection problems between parties that interact infrequently. Intermediaries aggregate many short-run transactions between various consumers and a particular producer. As such, they might be able to learn a producers level of proficiency more rapidly than an individual consumer. However, the presence of a positive information externality means that too few consumers will seek a referral. As such, some form of regulation to encourage consumers to seek a referral might be warranted.

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File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0018/130905/2007.06.pdf
File Function: First version, 2007.06.pdf
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Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2007.06.

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Length: 29 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:trb:wpaper:2007.06
Contact details of provider: Web page: http://www.latrobe.edu.au/economics

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  1. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
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  5. Damien S Eldridge, 2007. "A Shirking Theory of Referrals," Working Papers 2007.05, School of Economics, La Trobe University.
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  9. Damien S Eldridge, 2007. "A Learning Theory of Referrals," Working Papers 2007.06, School of Economics, La Trobe University.
  10. Jeffrey C. Ely & Johannes Horner & Wojciech Olszewski, 2003. "Belief-free Equilibria in Repeated Games," Levine's Working Paper Archive 666156000000000367, David K. Levine.
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  18. Avinash Dixit, 1989. "Trade and Insurance with Adverse Selection," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 235-247.
  19. John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
  20. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, May.
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