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Does Competition Aggravate Moral Hazard? A Multi-Principal-Agent Experiment

Olga Rud (), Jean Paul Rabanal () and John Horowitz ()

No 2016-86, Working Papers from Peruvian Economic Association

Abstract: We conduct a Multi-Principal-Agent experiment to determine whether market structure affects intermediary behavior. The intermediaries (Agents) are perfectly informed regarding project types and can recommend that Principals either proceed or discontinue with a project. Agents earn revenues only when they recommend to continue. We find that monopolist Agents protect the interests of Principals better than when Agents compete. Our findings are robust to a significant fee increase. The results of our study apply to a number of economic and financial environments (money-managers, rating agencies, etc.) and provide additional evidence on the impact of market structure on individual incentives and equilibrium outcomes.

Keywords: Delegated portfolio management; conflict of interests; rating services; market design; deception; laboratory experiment (search for similar items in EconPapers)
JEL-codes: D03 D40 D82 G02 G23 G24 C90 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-exp
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Journal Article: Does competition aggravate moral hazard? A Multi-Principal-Agent experiment (2018) Downloads
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