Information acquisition,referral, and organization |
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Authors: | Simona Grassi Ching‐to Albert Ma |
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Institution: | 1. Université de Lausanne;2. Boston University |
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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. |
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