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Sårvice Refusal in Regulated Markets for Credence Goods

Author

Listed:
  • Maarten Janssen

    (Department of Economics, University of Vienna and State University Higher School of Economics (Moscow))

  • Alexei Parakhonyak

    (Center for Advanced Studies, State University Higher School of Economics.)

Abstract

This paper analyzes dynamic selection effects in markets for credence goods where price structures are determined by a regulator or by central management. There are different types of consumers and each type requires a different service or treatment level. We show that for a large class of price structures some types of consumers are not treated and refused the service. Equilibria with selection are welfare inferior to equilibria without selection. We also characterize the class of price structures for which selection does not arise. As the market becomes larger or service providers become more patient the class of selection-free price structures shrinks and in the limit it is unique. We show that this unique price structure also removes incentives for overtreatment.

Suggested Citation

  • Maarten Janssen & Alexei Parakhonyak, 2011. "Sårvice Refusal in Regulated Markets for Credence Goods," HSE Working papers WP BRP 08/EC/2011, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:08/ec/2011
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Credence goods; Overtreatment; Selection effects;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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