An experimental investigation of rating-market regulation

Claudia Keser, Asri Özgümüs, Emmanuel Peterle () and Martin Schmidt

CIRANO Working Papers from CIRANO

Abstract: We introduce a simple game-theoretical model that captures the main aspects of the repeated interaction between an issuer and a credit-rating agency. It involves up-front payments of issuer-fees and direct publication of requested ratings. Due to pecuniary injuries for untruthful ratings, the credit-rating agency should always report truthfully in the subgame perfect equilibrium. Knowing this, the issuer should never request a rating. Conducting laboratory experiments, we find that behavior significantly deviates from the equilibrium prediction in favor of a cooperative solution: issuers frequently do request ratings, which is often reciprocated with untruthful good ratings.

Keywords: Game theory; laboratory experiments; rating agencies; regulation (search for similar items in EconPapers)
JEL-codes: C70 C9 G0 (search for similar items in EconPapers)
Date: 2017-03-06
New Economics Papers: this item is included in nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://cirano.qc.ca/files/publications/2017s-08.pdf

Related works:
Journal Article: An experimental investigation of rating-market regulation (2017)
Working Paper: An experimental investigation of rating-market regulation (2017)
Working Paper: An experimental investigation of rating-market regulation (2017)
Working Paper: An experimental investigation of rating-market regulation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2017s-08

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