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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
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