Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/36103 
Year of Publication: 
2009
Series/Report no.: 
IZA Discussion Papers No. 4647
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
Credence goods markets suffer from inefficiencies arising from informational asymmetries between expert sellers and customers. While standard theory predicts that inefficiencies disappear if customers can verify the quality received, verifiability fails to yield efficiency in experiments with endogenous prices. We identify heterogeneous distributional preferences as the main cause and design a parsimonious experiment with exogenous prices that allows classifying experts as either selfish, efficiency loving, inequality averse, inequality loving or competitive. Results show that most subjects exhibit non-standard distributional preferences, among which efficiency-loving and inequality aversion are most frequent. We discuss implications for institutional design and agent selection in credence goods markets.
Subjects: 
Distributional preferences
credence goods
verifiability
experiment
JEL: 
C72
C91
D82
Document Type: 
Working Paper

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