The Good, the Bad and the Naive: Do Fair Prices Signal Good Types or Do They Induce Good Behaviour?

27 Pages Posted: 28 Apr 2012

See all articles by Uwe Dulleck

Uwe Dulleck

Queensland University of Technology - School of Economics and Finance

David W. Johnston

Monash University

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

Abstract

Evidence on behavior of experts in credence goods markets raises an important causality issue: Do "fair prices" induce "good behavior", or do "good experts" post "fair prices"? To answer this question we propose and test a model with three seller types: "the good" choose fair prices and behave consumer-friendly; "the bad" mimic the good types' price-setting, but cheat on quality; and "the naive" fall victim to a projection bias that all sellers behave like the bad types. OLS, sample selection and fixed effects regressions support the model's predictions and show that causality goes from good experts to fair prices.

Keywords: credence goods, experts, pricing, experiment, other regarding preferences, signalling, projection bias

JEL Classification: C91, L15, D82, D40

Suggested Citation

Dulleck, Uwe and Johnston, David W. and Kerschbamer, Rudolf and Sutter, Matthias, The Good, the Bad and the Naive: Do Fair Prices Signal Good Types or Do They Induce Good Behaviour?. IZA Discussion Paper No. 6491. Available at SSRN: https://ssrn.com/abstract=2047277

Uwe Dulleck (Contact Author)

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

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Rudolf Kerschbamer

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

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