The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition | Zendy

Uwe Dulleck | Zendy; Rudolf Kerschbamer | Zendy; Matthias Sutter | Zendy

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The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition

Author(s) -

Uwe Dulleck,

Rudolf Kerschbamer,

Matthias Sutter

Publication year - 2011

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.101.2.526

Subject(s) - credence good , credence , economics , reputation , competition (biology) , liability , information asymmetry , market efficiency , microeconomics , yield (engineering) , monetary economics , financial economics , finance , law , ecology , statistics , materials science , mathematics , political science , metallurgy , biology

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 breakdown. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that liability or verifiability yield efficiency, we find that liability has a crucial, but verifiability at best 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. (JEL D12, D82)

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