 Mandate or delegate? the optimal contract for credence goods with the expert’s endeavorCheng-Tai Wu and Tsung-Sheng Tsai () Journal of Economic Behavior & Organization, 2025, vol. 229, issue C Abstract: We consider a market for credence goods where a consumer does not know her problem (either major or minor), and an expert can perform a treatment to fix the problem as well as make an effort to improve the effect of treatment. The consumer can offer a contract in which she mandates a specific treatment or a contract which she delegates to the expert who chooses the treatment and is also induced to reveal the consumer’s type. We find that the delegation contract can be the best contract when the high-level treatment is moderately more efficient than the low-level treatment in fixing the minor problem. This is because the delegation contract leads to a more efficient effort decision which can compensate for the efficiency loss from insufficient treatment. Therefore, the consumer may prefer to be under-treated for the minor problem even though the high-level treatment should have been mandated if she had known her type. Keywords: Credence goods; Moral hazard; Delegation; Under-treatment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:229:y:2025:i:c:s0167268124004773 DOI: 10.1016/j.jebo.2024.106863 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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