The economics of credence goods : an experiment on the role of liability, verifiability, reputation and competition

Dulleck, Uwe, Kerschbamer, Rudolf, & Sutter, Matthias (2011) The economics of credence goods : an experiment on the role of liability, verifiability, reputation and competition. The American Economic Review, 101(2), pp. 526-555.

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Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market breakdown. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that liability or verifiability yield efficiency, we find that liability has a crucial, but verifiability at best a minor, effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated. (JEL D12, D82)

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ID Code: 75882
Item Type: Journal Article
Refereed: Yes
Keywords: Consumer Economics, Asymmetric and Private Information
DOI: 10.1257/aer.101.2.526
ISSN: 0002-8282
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2011 American Economic Association
Deposited On: 02 Sep 2014 23:53
Last Modified: 02 Sep 2014 23:53

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