Efficient Liability in Expert Markets
Yongmin Chen (),
Jianpei Li and
MPRA Paper from University Library of Munich, Germany
We study the design of efficient liability in expert markets. An expert may misbehave in two ways: prescribing the "wrong" treatment for a consumer's problem, or failing to exert proper effort to diagnose the problem. We show that under a range of liabilities, the expert will choose the efficient treatment based on his information if the price margins for alternative treatments are close enough. Moreover, a well-designed liability rule motivates the expert to also exert diagnosis effort efficiently. The efficient liability is facilitated by certain restriction on equilibrium prices; unfettered competition between experts, while maximizing consumer surplus, may undermine efficiency.
Keywords: Credence 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: 2018-06-03, Revised 2018-06-03
New Economics Papers: this item is included in nep-gth, nep-knm, nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/87317/1/MPRA_paper_87317.pdf original version (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:87317
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().