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Download fileCredence Goods, Costly Diagnosis and Subjective Evaluation
journal contribution
posted on 2019-08-29, 13:11 authored by Helmut Bester, Matthias DahmWe 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.
Funding
Helmut Bester acknowledges support by the German Science Foundation (DFG) through SFB/TR 15 and by the Berlin Centre for Consumer Policies (BCCP). Matthias Dahm acknowledges the support of the Government of Spain under project ECO2010-19733.
History
Citation
The Economic Journal, 2018, 128 (611), pp. 1367-1394Author affiliation
/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/School of BusinessVersion
- AM (Accepted Manuscript)