Information acquisition, referral, and organization

Simona Grassi, Ching-to Albert Ma

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)
153 Downloads (Pure)

Abstract

Each of two experts may provide a service to a client. Experts' cost comparative advantage depends on an unknown state, but an expert may exert effort to get a private signal about it. In a market, an expert may refer the client to the other for a fee. In equilibrium, only one expert exerts effort and refers, and the equilibrium allocation is inefficient. Referral efficiency can be restored when experts form an organization, in which a referring expert must bear the referred expert's cost. However, the referred expert shirks from work effort because of the lack of cost responsibility.

Original languageEnglish
Pages (from-to)935-960
Number of pages26
JournalRAND JOURNAL OF ECONOMICS
Volume47
Issue number4
Early online date11 Nov 2016
DOIs
Publication statusPublished - 11 Nov 2016

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