Computer repair shops take advantage of customers with insurance


You might not guess that economists spend a whole lot of time thinking about auto mechanics, but they actually have a technical term for the service that the mechanics provide: credence goods. Credence goods are typically services where the person who receives the service is incapable of evaluating whether the service was provided quickly and efficiently or even if the needed service was provided at all.

These types of services aren’t limited to auto mechanics—other examples include medical care and cab rides in unfamiliar cities. Economists find these services interesting because we can learn from them about human financial interactions in cases where one of the parties might have an incentive to be dishonest.

A study of Austrian computer repair shops shows that plenty of said parties succumb to that incentive. The study also shows a common feature of modern economics that makes matters worse: insurance that covers the cost of the repairs.

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