Diagnostic uncertainty and insurance coverage in credence goods markets

Loukas Balafoutas, Helena Fornwagner, Rudolf Kerschbamer, Matthias Sutter, Maryna Tverdostup

In markets for credence goods - such as health care or repair services - fraudulent behavior by better informed experts is a common problem. Our model studies how four common features shape experts' provision behavior in credence goods markets: (i) diagnostic uncertainty of experts; (ii) insurance coverage of consumers; (iii) malpractice payments for treatment failure; and (vi) consumer-regarding preferences of experts. Diagnostic imprecision unambiguously leads to less efficient provision. Insurance coverage and malpractice payments have an ambiguous effect on efficient provision. The impact of consumer-regarding preferences on efficiency is positive without insurance but ambiguous in the presence of insurance.

MoreLess

Year of publication:	September 2023 ; This version: 29 September 2023
Authors:	Balafoutas, Loukas ; Fornwagner, Helena ; Kerschbamer, Rudolf ; Sutter, Matthias ; Tverdostup, Maryna
Publisher:	Bonn : Max Planck Institute for Research on Collective Goods
Subject:	Credence goods \| diagnostic uncertainty \| insurance coverage \| social preferences \| Vertrauensgüter \| Theorie \| Theory \| Asymmetrische Information \| Asymmetric information \| Risiko \| Risk \| Versicherungsschutz \| Insurance coverage \| Krankenversicherung \| Health insurance \| Soziale Wohlfahrtsfunktion \| Social welfare function