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Consumer Disutility from Assorted Referrals in Diagnostics Services

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  • Dinabandhu Bag

Abstract

This article highlights the moral hazard problem in credence goods offered in the market as referral services. Credence goods are purchased with trust that is not observed. This examines if a penalty framework by authorities or transparency in tariff can offset moral hazard costs. A simple service unit cost model and its application to consumer expenditure data suggests that expected disutility to consumers are minimized in the penalty framework. The findings differ in the way consumers respond to transparency in tariffs, and could continue to bear moral hazard cost, as long as such units are unregistered in nature. JEL Codes: O17, E26, D24, O3

Suggested Citation

  • Dinabandhu Bag, 2023. "Consumer Disutility from Assorted Referrals in Diagnostics Services," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 24(1), pages 64-77, March.
    • Handle: RePEc:sae:soueco:v:24:y:2023:i:1:p:64-77
    DOI: 10.1177/13915614221139937
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    References listed on IDEAS

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    More about this item

    Keywords

    Credence; moral hazard; assorted; referral;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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