Article
Version 1
Preserved in Portico This version is not peer-reviewed
Credence Goods, Price, and Quality
Version 1
: Received: 28 December 2022 / Approved: 30 December 2022 / Online: 30 December 2022 (09:55:50 CET)
How to cite: Moszoro, M. Credence Goods, Price, and Quality. Preprints 2022, 2022120580. https://doi.org/10.20944/preprints202212.0580.v1 Moszoro, M. Credence Goods, Price, and Quality. Preprints 2022, 2022120580. https://doi.org/10.20944/preprints202212.0580.v1
Abstract
When sellers set the price for ex-ante unobservable and ex-post unenforceable quality, price signals credence quality. Hedge funds resemble incomplete long-term contracts for credence goods under buyer-determined auctions. I show that hedge funds' ability to solicit investments at higher management fees signals their capacity to generate higher net returns. This result is more pronounced during bust cycles and closer to financial hubs, i.e., when signaling quality is more valuable. The findings are relevant to understanding price and effort in the provision of credence goods like medical procedures and legal advice.
Keywords
credence goods; price and performance; incomplete contracts; gift exchange and reciprocity
Subject
Business, Economics and Management, Finance
Copyright: This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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