Credence goods, costly diagnosis, and subjective evaluation

Bester, Helmut and Dahm, Matthias (2018) Credence goods, costly diagnosis, and subjective evaluation. Economic Journal, 128 (611). pp. 1367-1394. ISSN 1468-0297

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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.

Item Type: Article
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 This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > School of Economics
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Depositing User: Dahm, Matthias
Date Deposited: 25 Nov 2016 13:17
Last Modified: 04 May 2020 19:43

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