The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition

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The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition

Author Info

Dulleck, Uwe () (Queensland University of Technology)
Kerschbamer, Rudolf () (University of Innsbruck)
Sutter, Matthias () (University of Innsbruck)

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Abstract

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 break-down. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that either liability or verifiability yields efficiency, we find that liability has a crucial, but verifiability only 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.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4030.

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Length: 67 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4030

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Paper
- Dulleck, Uwe & Rudolf, Kerschbamer & Matthias, Sutter, 2009. "The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition," Working Papers in Economics 348, Göteborg University, Department of Economics. [Downloadable!]
- Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2009. "The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition," NCER Working Paper Series 42, National Centre for Econometric Research. [Downloadable!]
- Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2009. "The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition," Working Papers 2009-03, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D40 - Microeconomics - - Market Structure and Pricing - - - General
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-03-14 (All new papers)
NEP-CNA-2009-03-14 (China)
NEP-DEV-2009-03-14 (Development)
NEP-EDU-2009-03-14 (Education)
NEP-HRM-2009-03-14 (Human Capital & Human Resource Management)
NEP-LAB-2009-03-14 (Labour Economics)
NEP-TRA-2009-03-14 (Transition Economics)

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