Contracting to compete for flows
Jason Roderick Donaldson and
Journal of Economic Theory, 2018, vol. 173, issue C, 289-319
We present a model in which asset managers design their contracts to attract flows of investor capital. We find that they make their contracts depend on public information, e.g. credit ratings or benchmark indices, as a way to attract flows, rather than as a way to mitigate incentive problems, as has been emphasized in the literature. Unfortunately, asset managers' competition for flows triggers a race to the bottom: asset managers use public information in their contracts even though it is socially inefficient. This inefficiency arises because contracting on public information prevents risk sharing.
Keywords: Delegated asset management; Optimal contracting; Fund flows; Benchmarking; Credit ratings (search for similar items in EconPapers)
JEL-codes: G11 G23 D86 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:173:y:2018:i:c:p:289-319
Access Statistics for this article
Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell
More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().