Preventive-service fraud in credence good markets

Edi Karni

Economic Theory, 2024, vol. 78, issue 2, No 8, 593-617

Abstract: Abstract Preventive dental care and automotive service is intended to preempt problems that, if they materialized, would require costly treatment or repair. In these markets fraud is both persistent and pervasive. This paper analyzes these markets invoking the notion of perfect Bayesian equilibrium of a stochastic dynamic games of incomplete information in which the players are customers and service providers. The services provided are credence because diagnosis and service are bundled and the customers lack the expertise necessary to assess the need for the prescribed service both ex ante and ex post. The analysis shows that fraud is a prevalent equilibrium phenomenon that is somewhat mitigated by customers’ loyalty.

Keywords: Credence goods; Preventive-services fraud; Stochastic game of incomplete information (search for similar items in EconPapers)
JEL-codes: D40 D41 D69 D82 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00199-023-01540-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:joecth:v:78:y:2024:i:2:d:10.1007_s00199-023-01540-x

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

DOI: 10.1007/s00199-023-01540-x

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().