Dulleck, Uwe Johnston, David W. Kerschbamer, Rudolf Sutter, Matthias
Year of Publication:
IZA Discussion Papers No. 6491
Evidence on behavior of experts in credence goods markets raises an important causality issue: Do fair prices induce good behavior, or do good experts post fair prices? To answer this question we propose and test a model with three seller types: the good choose fair prices and behave consumer-friendly; the bad mimic the good types' price-setting, but cheat on quality; and the naive fall victim to a projection bias that all sellers behave like the bad types. OLS, sample selection and fixed effects regressions support the model's predictions and show that causality goes from good experts to fair prices.