Quality Ambiguity and the Market Mechanism for Credence Goods

Dietrich Benner

No 98639, Working Papers from Universitaet Hohenheim, Institute of Agricultural Policy and Agricultural Markets

Abstract: With credence goods consumers cannot judge actual quality neither before purchase (ex ante) nor after purchase (ex post). Trust has to replace own examination and verification. Applying Choquet-Expected Utility theory, ageneral model of credence goods is developed wich takes the problem of trust explicitly in its view and generalizes the problem of quality uncertainty on the 'market for lemmons' of Akerlof (1970) to 'quality ambiguity' with credence goods. The model shows the market mechanism only performing well in providing credence goods when consumers' trust in given information is not too low. With trust too low, sellers of credence good will be driven out of the market by trust induced adverse selection. In market equilibrium prices will always be lower compared to equilibrium prices for experience goods.

Keywords: Agricultural and Food Policy; Marketing (search for similar items in EconPapers)
Pages: 46
Date: 2004-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://ageconsearch.umn.edu/record/98639/files/haa-nr9.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:uhgewp:98639

DOI: 10.22004/ag.econ.98639

Access Statistics for this paper

More papers in Working Papers from Universitaet Hohenheim, Institute of Agricultural Policy and Agricultural Markets Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().