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Information Acquisition, Referral, and Organization

Simona Grassi () and Ching-to Ma ()
Additional contact information
Simona Grassi: Universite de Lausanne

No wp2015-007, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: Each of two experts may provide a service to a client. Experts' cost comparative advantage depends on an unknown state, but an expert may exert effort to get a private signal about it. In a market, an expert may refer the client to the other for a fee. In equilibrium, only one expert exerts e§ort and refers, and the equilibrium allocation is ine¢ cient. Referral efficiency can be restored when experts form an organization, in which a referring expert must bear the referred expert's cost. However, the referred expert shirks from work effort because of the lack of cost responsibility.

Keywords: information acquisition; referral; organization; adverse selection; cost-reduction incentive (search for similar items in EconPapers)
JEL-codes: D00 D02 D80 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm, nep-mic and nep-ppm
Date: 2015-10
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Related works:
Journal Article: Information acquisition, referral, and organization (2016) Downloads
Working Paper: Information Acquisition, Referral, and Organization (2016) Downloads
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