Information acquisition, referral, and organization
Files
Accepted manuscript
Date
2016-11
Authors
Grassi, Simona
Ma, Ching-to Albert
Version
Embargo Date
2018-11-10
OA Version
Citation
Simona Grassi, Ching-to Albert Ma. 2016. "Information acquisition, referral, and organization." The RAND Journal of Economics, v. 47, issue 4, pp. 935 - 960.
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.