Practices

Abstract

We examine an economy where professionals provide services to clients and where a professional can sell his practice to another. Professionals vary in quality, and clients in their need (or willingness-to-pay) for high-quality service. Efficiency is measured as the number of matches between high-quality professionals and high-need clients. However, agent types are unobservable a priori. We find that trade in practices can facilitate the transmission of information about agent types. In general full efficiency is achieved, but equilibrium is not always robust to random shocks. A tax on the sale of practices ensures the existence of robust, efficient equilibria.