Refusal Rights Right Reputation

Speaker: Dr Priscilla Man

Affiliation: The University of Queensland

Location: Level 6 Boardroom (629), Colin Clark Building (#39), St Lucia Campus

Zoom: https://uqz.zoom.us/j/82603079317

Abstract: This paper revisits Ely and Välimäki's (2003, Quarterly Journal of Economics) credence goods market in which a long-lived expert interacts with a sequence of short-lived consumers, who observe past consumers' purchases and update beliefs about the expert's type (“reputation”). When consumers have refusal rights, that is, when their purchase decisions are made after hearing the expert's current recommendation, Ely and Välimäki's “bad reputation” result no longer holds: A truth-telling equilibrium exists in which the good expert's type is revealed with probability 1. Our result is robust to the bad expert’s strategic recommendations, and can accommodate a small search cost (paid by the consumers) if the expert's type follows a highly persistent Markov chain.