Why Don't People Trust Experts?

Nathaniel G. Hilger

Journal of Law and Economics, 2016, vol. 59, issue 2, 293 - 311

Abstract: Credence goods such as health care, legal and financial services, and auto repair create a conflict of interest by requiring experts to diagnose and provide services to uninformed consumers. Mistreatment of consumers appears widespread empirically, but a simple explanation for mistreatment under realistic assumptions has proved elusive. I generalize Uwe Dulleck and Rudolf Kerschbamer's credence-good model to incorporate the highly realistic assumption that consumers do not observe experts' cost functions. The model guarantees equilibrium mistreatment in a wide range of price-setting and market environments. The model also yields testable implications regarding the nature of mistreating firms and the direction of mistreatment.

Date: 2016
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Citations: View citations in EconPapers (13)

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