Moral hazard, vertical integration, and public monitoring in credence goods

Henrik Vetter and Kostas Karantininis

European Review of Agricultural Economics, 2002, vol. 29, issue 2, 271-279

Abstract: Moral hazard is a problem in markets where the qualities or characteristics of products cannot be verified with certainty by consumers. Here we demonstrate that vertical integration is one possible way of dealing with such problems. When the saving of monitoring costs is the driving force behind vertical integration, public monitoring freely available to the market may prevent vertical integration. Copyright 2002, Oxford University Press.

Date: 2002
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