Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229522
Authors: 
Liu, Fang
Rasch, Alexander
Schwarz, Marco Alexander
Waibel, Christian
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8704
Abstract: 
In credence goods markets, experts have better information about the appropriate quality of treatment than their customers. Experts may exploit their informational advantage by defrauding customers. Market institutions have been shown theoretically to be effective in mitigating fraudulent expert behavior. We analyze whether this positive result carries over to a situation in which experts are heterogeneous in their diagnostic abilities. We find that efficient market outcomes are always possible. However, inefficient equilibria can also exist. If, in equilibrium, experts provide diagnosis-independent treatments, an increase in experts’ ability or in the probability of high-ability experts might not improve relative market efficiency.
Subjects: 
credence good
diagnosis
expert
fraud
overtreatment
undertreatment
JEL: 
D82
L15
Document Type: 
Working Paper

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