BICEPS/SSE Riga Research Seminar: Diagnostic uncertainty and insurance in credence goods markets

We kindly invite you to the BICEPS/SSE Riga research seminar! It will take place on Thursday, April 4 at 17.00 in room 611 with the presentation:

“Diagnostic uncertainty and insurance in credence goods markets” by Maryna Tverdostup (University of Innsbruck), co-authored with Loukas Balafoutas, Helena Fornwagner, Rudolf Kerschbamer, and Matthias Sutter.

Abstract

A growing recent literature studies the determinants of fraud and inefficiencies in markets for credence goods, in which an expert who possesses superior information about a consumer’s needs may take actions that increase consumer expenditure. Prime examples of such markets include repair services, legal and financial services, and healthcare. While certain aspects of the institutional environment in credence goods markets – such as liability, verifiability, reputation, and competition between experts – have been studied in the literature, there exists hardly any evidence on the role of insurance protection. In addition, very little is known about the role of diagnostic uncertainty in credence goods markets. This paper offers an examination of these two factors, by comparing service provision by an expert in the absence and in the presence of insurance, as well as under perfect and imperfect diagnostic precision. We present a theoretical model, followed by evidence of the role of insurance and diagnostic uncertainty from a laboratory experiment. Experimental results show in line with the theoretical predictions that insurance and uncertainty about the consumer problem lead to more overtreatment. Moreover, if consumer is are insured, experts invest less in a higher diagnostic precision. We discuss implications of our findings for credence goods markets and in particular for healthcare services.

No prior registration for the seminar is necessary. For any questions about the seminar, or if you have a colleague that would like to be added to the distribution list, please write to Nicolas Gavoille.