The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition

Uwe Dulleck, Rudolf Kerschbamer and Matthias Sutter

No 4030, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market break-down. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that either liability or verifiability yields efficiency, we find that liability has a crucial, but verifiability only a minor effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated.

Keywords: credence goods; experiment; liability; verifiability; reputation; competition (search for similar items in EconPapers)
JEL-codes: C72 C91 D40 D82 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2009-02
New Economics Papers: this item is included in nep-cna, nep-dev, nep-edu, nep-hrm, nep-lab and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - revised version published in: American Economic Review, 2011, 101 (2), 526-555

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Related works:
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
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