What Characterizes Credence Goods? A Critical Look at the Literature.

Abstract

Credence goods like health care, financial advice, food labelling or journalism are at the centre of political discussions. The research on credence goods has expanded over the last years. There are now different isolated lines of literature referring to “credence goods”. I present a brief overview of the examples for credence goods used in different lines of literature. I categorize the examples into markets with expert providers, expert advisors, information experts and no expertise. I discuss the classic characterization by Darby and Karni (1973) (DK73) and how different modelling approaches used in the literature relate to it. I show that recently, authors have characterized credence goods in different ways, some of which are inconsistent with the characterization in DK73. I discuss the associated problems. The aim of the paper is to raise awareness for the interconnectedness of different subfields of the economic literature and to promote a common characterization of credence goods based on the original characterization by DK73.

Keywords: Credence Goods, asymmetric information, definition, survey, examples, health care, financial advice, journalism

JEL Classification: D18, D82, L15