Extreme Credence and Imaginary Goods
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The division of goods into types or characteristics has a long history in economics, but it has achieved new importance in the last 50 years. This paper presents a novel pedagogical differentiation of goods into search, experience and credence categories, in part by adding a new goods designation. We argue that there is an important class of meta-credence goods for which there is no possible means of verification in any standard Popperian sense, meaning that the probability of fraud is greatly increased. Despite this fact, markets and prices exist. Assurances of some kind, whether self-generated or provided by experts, substitute for evidence. We propose using examples, some drawn from neoclassical economist Carl Menger, that such a characterization is useful in analyzing such markets.
KeywordsGoods classification Cultural economics Religion Art
We are grateful to John D. Jackson, Kathy White, Richard Higgins and the late Robert Tollison for comments on the central idea of this paper. Comments of the reviewer and editor were also helpful. Naturally we assume complete responsibility for our work.
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