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Prof. Yi Chen
Assistant Professor of Economics
Samuel Curtis Johnson Graduate School of Management
Cornell University

We study a dynamic model of referrals among experts that are horizontally specialized in treating heterogeneous problems. Demand for an expert’s services increases in their reputation, a decaying record of their historic success rate in solving problems. Experts refer mismatched problems, trading off today’s revenue with a higher demand tomorrow. In the unique steady state of Markov equilibria, the market generally neither supports efficient referrals nor optimal specialization, a problem potentially exacerbated by the adoption of AI. Our results suggest that regulation should allow for referral alliances and partnerships among small numbers of experts with complementary skills.