In part 1 of this lecture, we are going to introduce the basic set-up of credence goods markets and discuss how markets should be designed to provide the right incentives for experts and their customers. The theoretical analysis will be complemented by the discussion of evidence of expert behaviour and market outcomes from empirical as well experimental studies.

In part 2 of the lecture, the emphasis will be on information disclosure by interested parties and evidence provision by intermediaries. On markets, intermediaries such as certifiers or rating agencies mediate information between producers and consumers. Inside firms and in regulatory relationships, monitors and informed regulators play a key role in providing incentives. We will analyse strategic interaction in these three-tier structures and discuss applications.