Consumer Disutility from Assorted Referrals in Diagnostics Services

Dinabandhu Bag

South Asia Economic Journal, 2023, vol. 24, issue 1, 64-77

Abstract: This article highlights the moral hazard problem in credence goods offered in the market as referral services. Credence goods are purchased with trust that is not observed. This examines if a penalty framework by authorities or transparency in tariff can offset moral hazard costs. A simple service unit cost model and its application to consumer expenditure data suggests that expected disutility to consumers are minimized in the penalty framework. The findings differ in the way consumers respond to transparency in tariffs, and could continue to bear moral hazard cost, as long as such units are unregistered in nature. JEL Codes: O17, E26, D24, O3

Keywords: Credence; moral hazard; assorted; referral (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:sae:soueco:v:24:y:2023:i:1:p:64-77

DOI: 10.1177/13915614221139937

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