Munich Personal RePEc Archive

Expert Costs and the Role of Verifiability

Li, Jianpei and Ouyang, Yaofu and Zhang, Wanzhu (2022): Expert Costs and the Role of Verifiability.

This is the latest version of this item.

[thumbnail of MPRA_paper_115716.pdf]

Download (502kB) | Preview


We analyze a credence goods market where the expert may have a high or low cost in repairing a major problem, under the assumptions that i) the expert is liable for the outcome of the treatment (liability), and ii) the type of treatment is (or is not) verifiable by the consumer (verifiability). We show that, with just liability, an inefficiency arises because not all major problems are resolved in equilibrium. With both verifiability and liability, another inefficiency arises because minor problems are sometimes fixed through costly major treatments (overtreatment). Adding verifiability improves social welfare because a major problem is resolved with a higher probability, and the gain dominates wasteful overtreatment costs.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.