Can a Bonus Overcome Moral Hazard? An Experiment on Voluntary Payments, Competition, and Reputation in Markets for Expert Services

Vera Angelova and Tobias Regner

No 26, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

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. We observe a positive effect on the rate of truthful advice when the bonus creates multiple opportunities to reciprocate, that is, when the bonus is combined with identifiability (leading to several client-advisor interactions over the course of the game) or competition (allowing one advisor to have several clients who may reciprocate within one period).

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)
Date: 2017-03-29
New Economics Papers: this item is included in nep-exp and nep-hrm
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Related works:
Working Paper: Can a bonus overcome moral hazard? An experiment on voluntary payments, competition, and reputation in markets for expert services (2016)
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