The Market for Conflicted Advice

Martin Szydlowski and Briana Chang
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Briana Chang: University of Wisconsin-Madison

No 133, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We study decentralized markets in which advisers have conflicts of interest and compete for customers via information provision. We show that competition partially disciplines conflicted advisers. The equilibrium features information dispersion and sorting of heterogeneous customers and advisers: advisers with expertise in more information sensitive assets attract less informed customers, provide worse information, and earn higher profits. We apply our framework to the market for financial advice and establish new insights: while the conflicted fee structure affects asset return, it is irrelevant for the welfare of consumers. It is the underlying distribution of financial literacy that determines the consumers’ welfare.

Date: 2017
New Economics Papers: this item is included in nep-fle and nep-mic
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Citations: View citations in EconPapers (5)

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