EFFICIENT LIABILITY IN EXPERT MARKETS

Yongmin Chen, Jianpei Li and Jin Zhang

International Economic Review, 2022, vol. 63, issue 4, 1717-1744

Abstract: When providing professional services, an expert may misbehave by either prescribing “wrong” treatment for consumer's problem or failing to exert proper effort to diagnose it. We show that under a range of liabilities the expert will recommend the appropriate treatment based on his private information if markups for alternative treatments are close enough; however, a well‐designed liability rule is essential for also motivating efficient diagnosis effort. We further demonstrate that unfettered price competition between experts may undermine the efficient role of liability, whereas either a minimum‐price constraint or an obligation‐to‐serve requirement can restore it.

Date: 2022
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Citations: View citations in EconPapers (6)

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https://doi.org/10.1111/iere.12598

Related works:
Working Paper: Efficient Liability in Expert Markets (2022)
Working Paper: Efficient Liability in Expert Markets (2020)
Working Paper: Efficient Liability in Expert Markets (2020)
Working Paper: Efficient Liability in Expert Markets (2018)
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