Efficient Liability in Expert Markets

Yongmin Chen, Jianpei Li and Jin Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: When providing professional services, an expert may misbehave by either prescribing the "wrong" treatment for a 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 price margins 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.

Keywords: Credence goods; experience goods; experts; liability; diagnosis effort; undertreatment; overtreatment (search for similar items in EconPapers)
JEL-codes: D82 I18 K13 L23 (search for similar items in EconPapers)
Date: 2017-07-15, Revised 2020-11-06
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https://mpra.ub.uni-muenchen.de/104090/19/MPRA_paper_104090.pdf original version (application/pdf)

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 (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:104090

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