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Can a Bonus Overcome Moral Hazard? Experimental Evidence from Markets for Expert Services

Vera Angelova () and Tobias Regner

No 2018-009, Jena Economic Research Papers from Friedrich-Schiller-University Jena

Abstract: Interactions between players with private information and opposed interests are often prone to bad advice and inefficient outcomes, e.g. markets for financial or health care services. In a deception game we investigate experimentally which factors could improve advice quality. Besides advisor competition and identifiability, we add the possibility for clients to make a voluntary payment, a bonus, after observing advice quality. While the combination of competition and reputation concerns achieves the highest rate of truthful advice, we observe a similar effect, when the bonus is combined with one of them. Thus, our results suggest that a voluntary component can act as a substitute for either competition or reputation, decreasing moral hazard.

Keywords: asymmetric information; principal-agent; expert services; deception game; sender-receiver game; reciprocity; reputation; experiments; voluntary payment; competition (search for similar items in EconPapers)
JEL-codes: C91 D03 D82 G20 I11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-hrm
Date: 2018-07-26
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