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- Title
Experts and quacks.
- Authors
Sandford, Jeremy A.
- Abstract
What happens when “type” is endogenous in a reputational setting? Here, customers cannot tell “experts” from imitative “quacks,” but gain information through repeated interaction. Firm incentives to invest in expertise vary nonmonotonically in how tolerant customers are of bad outcomes; more tolerant customers are both more forgiving, making expertise less necessary, and longer tenured, increasing the value of retaining them. In equilibrium, the proportion of expert firms is bounded away from one; some quacks are necessary to keep incentives of experts in line. The fraction of experts is decreasing in customers' switching costs and the relative cost of expertise over quackery.
- Subjects
SPECIALISTS; QUACKS &; quackery; CONSUMERS; LABOR incentives; CONSUMER behavior
- Publication
RAND Journal of Economics (Wiley-Blackwell), 2010, Vol 41, Issue 1, p199
- ISSN
0741-6261
- Publication type
Article
- DOI
10.1111/j.1756-2171.2009.00096.x