How Social Preferences Shape Incentives in (Experimental) Markets for Credence Goods

24 Pages Posted: 1 Mar 2017

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

Date Written: March 2017

Abstract

Credence goods markets suffer from inefficiencies caused by superior information of sellers about the surplus‐maximising quality. While standard theory predicts that equal mark‐up prices solve the credence goods problem if customers can verify the quality received, experimental evidence indicates the opposite. We identify a lack of robustness with respect to heterogeneity in social preferences as a possible cause of this and conduct new experiments that allow for parsimonious identification of sellers’ social preference types. Our results confirm the assumed heterogeneity in social preferences and provide strong support for our explanation of the failure of verifiability to increase efficiency.

Suggested Citation

Kerschbamer, Rudolf and Sutter, Matthias and Dulleck, Uwe, How Social Preferences Shape Incentives in (Experimental) Markets for Credence Goods (March 2017). The Economic Journal, Vol. 127, Issue 600, pp. 393-416, 2017. Available at SSRN: https://ssrn.com/abstract=2924896 or http://dx.doi.org/10.1111/ecoj.12284

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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