The Impact of Distributional Preferences on (Experimental) Markets for Expert Services

52 Pages Posted: 22 Dec 2009

See all articles by Rudolf Kerschbamer

Rudolf Kerschbamer

University of Innsbruck; Centre for Economic Policy Research (CEPR)

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Cologne - Department of Economics

Uwe Dulleck

Queensland University of Technology - School of Economics and Finance

Abstract

Credence goods markets suffer from inefficiencies arising from informational asymmetries between expert sellers and customers. While standard theory predicts that inefficiencies disappear if customers can verify the quality received, verifiability fails to yield efficiency in experiments with endogenous prices. We identify heterogeneous distributional preferences as the main cause and design a parsimonious experiment with exogenous prices that allows classifying experts as either selfish, efficiency loving, inequality averse, inequality loving or competitive. Results show that most subjects exhibit non-standard distributional preferences, among which efficiency-loving and inequality aversion are most frequent. We discuss implications for institutional design and agent selection in credence goods markets.

Keywords: distributional preferences, credence goods, verifiability, experiment

JEL Classification: C72, C91, D82

Suggested Citation

Kerschbamer, Rudolf and Sutter, Matthias and Dulleck, Uwe, The Impact of Distributional Preferences on (Experimental) Markets for Expert Services. IZA Discussion Paper No. 4647. Available at SSRN: https://ssrn.com/abstract=1526077

Rudolf Kerschbamer (Contact Author)

University of Innsbruck ( email )

Universitaetsstrasse 15
Innsbruck, A - 6020
Austria
+43 512 507 7400 (Phone)
+43 512 507 2980 (Fax)

HOME PAGE: http://www.uibk.ac.at/c/c4/c409/staff/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Cologne - Department of Economics

Cologne, 50923
Germany

Uwe Dulleck

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

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