An experimental investigation of rating-market regulation

Claudia Keser, Asri Özgümüs, Emmanuel Peterle () and Martin Schmidt
Additional contact information
Claudia Keser: University of Göttingen
Asri Özgümüs: University of Göttingen
Martin Schmidt: Karlsruhe Institute of Technology (KIT)

No 2017-07, Working Papers from CRESE

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 G01 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2017-03
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 (7)

Published in Journal of Economic Behavior & Organization, Volume 144, December 2017, Pages 78-86

Downloads: (external link)
https://crese.univ-fcomte.fr/uploads/wp/WP-2017-07.pdf First version, 2017 (application/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)
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:crb:wpaper:2017-07

DOI: 10.1016/j.jebo.2017.09.022

Access Statistics for this paper

More papers in Working Papers from CRESE Contact information at EDIRC.
Bibliographic data for series maintained by Laurent Kondratuk ().