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The Economics of Advice

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  • Winand Emons
  • Severin Lenhard

Abstract

A consumer wants to buy one of three different products. An expert observes which of the three products is the best match for the consumer. Under linear prices a monopolistic expert may truthfully reveal, may partially reveal, and may not reveal at all her information. The outcome is ineffcient; moreover, the consumer gets some of the surplus. With a two-part tariff the expert truthfully reveals her information. The outcome is effcient and the expert appropriates the entire surplus. If experts are competitive, they also truthfully reveal; here all the surplus goes to consumers.

Suggested Citation

  • Winand Emons & Severin Lenhard, 2022. "The Economics of Advice," Diskussionsschriften dp2214, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp2214
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    References listed on IDEAS

    as
    1. Yongmin Chen & Jianpei Li & Jin Zhang, 2022. "Efficient Liability In Expert Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(4), pages 1717-1744, November.
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    Keywords

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    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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