The economics of credence goods: An experiment on the role of liability, verifiability, reputation, and competition

Uwe Dulleck, Rudolf Kerschbamer, Matthias Sutter

Research output: Contribution to journalArticlepeer-review

189 Citations (Scopus)

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 breakdown. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that liability or verifiability yield efficiency, we find that liability has a crucial, but verifiability at best 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.

Original languageEnglish
Pages (from-to)526-555
Number of pages30
JournalAmerican Economic Review
Volume101
Issue number2
DOIs
Publication statusPublished - Apr 2011
Externally publishedYes

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