Agency Problems and Reputation in Expert Services: Evidence from Auto Repair

Abstract:     
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.

Keywords: Reputation, Asymmetric Information, Field Experiments, Expert Services

JEL Classifications: D82, L14, L15

Working Paper Series