Abstract

http://ssrn.com/abstract=317299
 
 

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A Theory of Fraud and Over-Consumption in Experts Markets


Ingela Alger


University of Toulouse 1 - Toulouse School of Economics (TSE); National Institute for Agricultural Research (INRA) - Laboratoire d'Economie des Ressources Naturelles (LERNA); French National Center for Scientific Research (CNRS)

Francois Salanie


National Institute for Agricultural Research (INRA)

November 2004

Boston College Economics Department Working Paper No. 495

Abstract:     
Consumers often have to rely on an expert's diagnosis to assess their needs. If the expert is also the seller of services, he may use his informational advantage to induce over-consumption. Empirical evidence suggests that over-consumption is a pervasive phenomenon in experts markets. We offer and discuss conditions leading to equilibrium over-consumption in an otherwise purely competitive model. This market failure results from the freedom of consumers to turn down an expert's recommendation: experts defraud consumers in order to keep them uninformed, as this deters them from seeking a better price elsewhere. Our model also yields predictions on the diagnosis price that are in line with stylized facts.

Number of Pages in PDF File: 35

Keywords: Experts, fraud, over-consumption

JEL Classification: D43, D82, L11

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Date posted: July 20, 2002  

Suggested Citation

Alger, Ingela and Salanie, Francois, A Theory of Fraud and Over-Consumption in Experts Markets (November 2004). Boston College Economics Department Working Paper No. 495. Available at SSRN: http://ssrn.com/abstract=317299 or http://dx.doi.org/10.2139/ssrn.317299

Contact Information

Ingela Alger (Contact Author)
University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )
Place Anatole-France
Toulouse Cedex, F-31042
France
National Institute for Agricultural Research (INRA) - Laboratoire d'Economie des Ressources Naturelles (LERNA) ( email )
21, Allee de Brienne
31000 Toulouse
France
French National Center for Scientific Research (CNRS) ( email )
106-112 Boulevard de l'Hopital
75647 Paris Cedex 13, 94204
France
Francois Salanie
National Institute for Agricultural Research (INRA) ( email )
21, Allee de Brienne
31000 Toulouse
France
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