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Credence goods, costly diagnosis, and subjective evaluation

Bester, Helmut; Dahm, Matthias

Authors

Helmut Bester

Matthias Dahm matthias.dahm@nottingham.ac.uk



Abstract

We study contracting between a consumer and an expert in a credence goods model when (i) the expert's choice of diagnosis effort is not observable, (ii) the expert might misrepresent his private information about the adequate treatment, and (iii) payments can depend only on the consumer’s subjective evaluation of treatment success. We show that the first--best solution can always be implemented if the parties' discount factor is equal to one; a decrease in the discount factor makes obtaining the first--best more difficult. The first--best is also always implementable if separation of diagnosis and treatment is possible.

Journal Article Type Article
Publication Date Jun 30, 2018
Journal Economic Journal
Print ISSN 0013-0133
Electronic ISSN 1468-0297
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 128
Issue 611
APA6 Citation Bester, H., & Dahm, M. (2018). Credence goods, costly diagnosis, and subjective evaluation. Economic Journal, 128(611), https://doi.org/10.1111/ecoj.12472
DOI https://doi.org/10.1111/ecoj.12472
Publisher URL http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12472/full
Copyright Statement Copyright information regarding this work can be found at the following address: http://eprints.nottingh.../end_user_agreement.pdf
Additional Information This is the peer reviewed version of the following article: Bester, H. and Dahm, M. (2017), Credence Goods, Costly Diagnosis and Subjective Evaluation. Econ J. doi:10.1111/ecoj.12472 which has been published in final form at http://onlinelibrary.wi...10.1111/ecoj.12472/full This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://eprints.nottingham.ac.uk/end_user_agreement.pdf





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