Edi Karni from Johns Hopkins will present “Competitive Equilibrium Fraud in the Markets for Credence-Goods”.
Abstract: This is a study of the nature and prevalence of persistent fraud in competitive markets for credence-quality goods. We model the market as a game in which the players are customers and suppliers and analyze their equilibrium behavior. Customers characteristics, search cost and discount rate, are draft information. Customers do not possess the expertise necessary to assess the service they need either ex ante or ex post. We show that there exists no fraud-free equilibrium in the markets for credence-quality goods and that fraud is persistent and prevalent equilibrium phenomenon.