Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets

Loukas Balafoutas, Helena Fornwagner, Rudolf Kerschbamer, Matthias Sutter and Maryna Tverdostup
Additional contact information
Loukas Balafoutas: University of Exeter, United Kingdom, University of Innsbruck, Austria
Helena Fornwagner: University of Exeter, Austrian Institute of Economic Research (WIFO)
Maryna Tverdostup: Vienna Institute for International Economic Studies, Austria

No 2023_12, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: In markets for credence goods – such as health care or repair services – fraudulent behavior by better informed experts is a common problem. Our model studies how four common features shape experts’ provision behavior in credence goods markets: (i) diagnostic uncertainty of experts; (ii) insurance coverage of consumers; (iii) malpractice payments for treatment failure; and (vi) consumer-regarding preferences of experts. Diagnostic imprecision unambiguously leads to less efficient provision. Insurance coverage and malpractice payments have an ambiguous effect on efficient provision. The impact of consumer-regarding preferences on efficiency is positive without insurance but ambiguous in the presence of insurance.

Keywords: Credence goods; diagnostic uncertainty; insurance coverage; social preferences (search for similar items in EconPapers)
JEL-codes: D82 G22 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-eur and nep-mic
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https://www.coll.mpg.de/pdf_dat/2023_12online.pdf (application/pdf)

Related works:
Working Paper: Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets (2023)
Working Paper: Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets (2023)
Working Paper: Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets (2020)
Working Paper: Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets (2020)
Working Paper: Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets (2020)
Working Paper: Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets (2020)
Working Paper: Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets (2020)
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