Does competition affect truth-telling? An experiment with rating agencies

Jean Paul Rabanal () and Olga A. Rabanal
Additional contact information
Olga A. Rabanal: Ball State University
Authors registered in the RePEc Author Service: Olga A. Rud ()

No 48, Working Papers from Peruvian Economic Association

Abstract: We study the effect of competition on the conflicts of interest in an issuer-pay model. Our analysis complements the theoretical work of Bolton, Freixas and Shapiro (2012) by introducing an experimental approach that examines the effect of market structure –monopoly and competition– on the incidence of misreporting by rating agencies. In our game, agencies receive a signal regarding the type of asset that the seller holds. The seller does not know the asset type and therefore, asks the rating agency for a report which is either blue (good) or red (bad). The asset, along with the report (if any), is then presented to the buyer for purchase. We find that in the monopoly environment the likelihood of misreporting is almost three times as high as in the more competitive market.

Keywords: Credit rating agencies; Conflicts of interest; Market structure; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 D43 D82 G24 L15 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-com and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://perueconomics.org/wp-content/uploads/2014/01/WP-48.pdf Application/pdf

Related works:
Journal Article: Does Competition Affect Truth Telling? An Experiment with Rating Agencies (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:apc:wpaper:2015-048

Access Statistics for this paper

More papers in Working Papers from Peruvian Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Nelson Ramírez-Rondán ().