Credence Goods, Costly Diagnosis and Subjective Evaluation

Bibliographic Data

ID9718236
AuthorsHelmut Bester (Freie Universität Berlin), Matthias Dahm (0000-0002-3146-6802, University of Nottingham)
Year2018
Volume128
Issue611
Pages1367-1394
Publication date2018-06-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12472
OpenAlexW1908767802
LanguageEN
Citations received4
References cited47

We study contracting between a consumer and an expert in a credence goods model when: (i) the expert's choice of diagnosis effort is not observable; (ii) the expert might misrepresent his private information about the adequate treatment; and (iii) payments can depend only on the consumer's subjective evaluation of treatment success. We show that the first‐best solution can always be implemented if the parties’ discount factor is equal to one; a decrease in the discount factor makes obtaining the first‐best more difficult. The first‐best is also always implementable if separation of diagnosis and treatment is possible

Actuarial science · Credence · Credence good · Economics · Information asymmetry · Machine learning · Microeconomics · Payment · Public economics · Auction Theory and Applications · Computer Science · Finance · Law, Economics, and Judicial Systems · Merger and Competition Analysis

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