Agency Problems and Reputation in Expert Services: Evidence from Auto Repair
Henry S. Schneider
Cornell University - S.C. Johnson Graduate School of Management
December 21, 2009
Johnson School Research Paper Series No. 15-07
I investigate the nature of agency problems in the auto repair market and the ability of reputation to limit them by examining data on 40 undercover garage visits I collected during a field experiment and 51 undercover garages visits provided by a public-interest group. I document clear patterns of agency problems and estimate that the resulting welfare loss represents a substantial fraction of industry revenue. I find no evidence, however, that a mechanic's concern for her reputation improves service quality or limits inefficiencies. I conclude by drawing inferences to expert services more generally and discussing possible remedies.
Number of Pages in PDF File: 42
Keywords: Reputation, Asymmetric Information, Field Experiments, Expert Services
JEL Classification: D82, L14, L15
Date posted: October 17, 2007 ; Last revised: February 18, 2010
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