+49 (0) 221 470-6939
My research crosses the fields of Industrial Organization, Behavioral and Media Economics.
- Industrial Organization and Competition (BSc)
- Economics of Strategy (BSc)
- Introduction to Microeconomics (BSc)
- Our theory provides a novel rationale for the widespread use of price and entry regulation in real-world Credence Goods markets.
- To support the plausibility of our assumption on experts’ preferences, we additionally provide an empirical analysis demonstrating the causal effect of income on prosocial behavior.
Abstract: We study a credence goods problem – that is, a moral hazard problem with non-contractible outcome – where experts (the agents) care both about their income and the utility of consumers (the principals). Experts’ preferences over income and their consumers’ utility are convex, such that experts care less for consumers when their financial situation is bad. In a market setting with multiple consumers per expert, an externality arises across consumers: one consumer’s payment raises the expert’s income, which makes the non-selfish part of preferences more important and thereby induces the expert to provide higher quality services to all consumers. The externality renders the market outcome inefficient. Price regulation partially overcomes this inefficiency and Pareto-improves upon the market outcome. If market entry of experts is endogenous, price regulation should be accompanied by licensing arrangements that cap the number of experts in the market. Our theory provides a simple and novel rationale for the widespread use of price regulation and licensing in real-world markets for expert services.