Can a bonus overcome moral hazard? Experimental evidence from markets for expert services

Vera Angelova and Tobias Regner

Journal of Economic Behavior & Organization, 2018, vol. 154, issue C, 362-378

Abstract: Interactions between players with private information and opposed interests are often prone to bad advice and inefficient outcomes, e.g. markets for financial or health care services. In a deception game we investigate experimentally which factors could improve advice quality. Besides advisor competition and identifiability, we add the possibility for clients to make a voluntary payment, a bonus, after observing advice quality. While the combination of competition and reputation concerns achieves the highest rate of truthful advice, we observe a similar effect, when the bonus is combined with one of them. Thus, our results suggest that a voluntary component can act as a substitute for either competition or reputation, decreasing moral hazard.

Keywords: Asymmetric information; Principal–agent; Expert services; Deception game; Sender–receiver game; Reciprocity; Reputation; Experiments; Voluntary payment; Competition (search for similar items in EconPapers)
JEL-codes: C91 D03 D82 G20 I11 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Can a Bonus Overcome Moral Hazard? Experimental Evidence from Markets for Expert Services (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:154:y:2018:i:c:p:362-378

DOI: 10.1016/j.jebo.2018.07.016

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