Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173277
Authors: 
Bester, Helmut
Yaofu, Ouyang
Year of Publication: 
2018
Series/Report no.: 
Diskussionsbeiträge 2018/1
Abstract: 
This paper analyzes the optimal contract for a consumer to procure a credence good from an expert when (i) the expert might misrepresent his private information about the consumer's need, (ii) the expert might not choose the requested service since his choice of treatment is non-observable, and (iii) limited liability of the expert precludes imposing penalty payments on him. We characterize payments under the optimal contract and show that, compared with the first-best, these induce inefficient undertreatment. We further show that separating diagnosis and treatment increases consumer surplus. Whether it decreases or increases the likelihood of undertreatment, however, depends on the accuracy of the expert's information.
Subjects: 
credence goods
non-observable treatments
hidden information
moral hazard
limited liability
JEL: 
D82
D83
D86
I11
Document Type: 
Working Paper
Social Media Mentions:

2



Files in This Item:
File
Size
307.72 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.