Reputation and credence goods

The objective of this study is to ascertain how markets for credence goods operate. This is accomplished by modeling steady-state quality choices in a credence good market with reputation effects; and empirically, by studying consumers' response to credence goods, focusing on The Food Alliance (TFA) ecolabel and the European Protected Geographical Identification (PGI) label "Galician Veal.";The dissertation is made up of four independent but related articles. The first article presents an optimal control problem that analyzes reputation incentives and quality choice by a monopolist who sells credence goods. Reputation enters the problem as a demand shifter and as a state variable. The steady-state level of product quality with credence goods is found to be lower than that with experience goods.;The second and third articles are based on analyses of data obtained from a survey and economic experiment conducted with the purpose of eliciting consumers' willingness to pay (WTP) for ecolabeled apples. Effects of socio-demographic characteristics on apple choice were estimated with a multinomial logit model. Using a double-bounded model, the mean willingness to pay premium for ecolabeled apples was approximately nine cents per pound.;The third article proposes an original way of testing for consistency between results obtained from the WTP survey and purchases of ecolabeled apples. Results show that, in spite of differences between revealed and stated preferences, consumers' behavior was consistent within both set of preferences.;The fourth article shows the effect of PGI labels on purchases of fresh meat in Spain. A hedonic price model is provided as the theoretical framework to analyze perceived quality and labeling and to identify consumers' WTP for the label "Galician Veal." Results indicate that the PGI label brings a selective premium to the various cuts of meat.;Based on the findings of this dissertation, reputation is an important factor in the market for credence goods. It provides an incentive to maintain high quality. Empirically, reputation and high quality are reflected in premiums for credence goods.