Darby & Karni (J Law Econ 1973) — "credence good": quality consumers never discover even after consumption

Claim: Darby, M. R. & Karni, E. "Free Competition and the Optimal Amount of Fraud." Journal of Law and Economics, Vol. 16, No. 1 (April 1973), pp. 67–88. Introduces the term credence good: a good whose quality "consumers never discover [...] even after consumption" because the consumer lacks the expertise to evaluate either the diagnosis or the treatment.

Subsequent canonical extensions:

• Emons, W. "Credence Goods and Fraudulent Experts." RAND Journal of Economics 28(1): 107–119 (1997).
• Emons, W. "Credence Goods Monopolists." International Journal of Industrial Organization 19: 375–389 (2001).
• Dulleck, U. & Kerschbamer, R. "On Doctors, Mechanics, and Computer Specialists: The Economics of Credence Goods." Journal of Economic Literature 44(1): 5–42 (2006).
• Wolinsky, A. on reputation in credence-good markets (RAND J Econ, 1995).
• Chiu & Karni, work on credence-good reputation dynamics (2021).

Confidence: Verified (primary academic literature).

Key finding from the literature: Credence-good markets are systematically prone to over-prescription, fraud, and information-asymmetry-driven mistrust. The default rational stance for an uninformed buyer is skepticism. Reputational and referral mechanisms partially compensate — see Wolinsky 1995 — which is the theoretical basis for why peer-referred vendors close at far higher rates than cold-pitched ones.

For Candid: Foundational. The category-level marketing aversion in GCs is not irrational; it is the predicted equilibrium behavior of a credence-good market with asymmetric information. The applied version is [[marketing-services-as-credence-good-for-gc]] and the strategic response is [[rule-concede-credence-good-problem-make-marketing-inspectable]].