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An experimental investigation of rating-market regulation

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

No 299, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

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 creditrating 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
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (6) Track citations by RSS feed

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Related works:
Journal Article: An experimental investigation of rating-market regulation (2017) Downloads
Working Paper: An experimental investigation of rating-market regulation (2017) Downloads
Working Paper: An experimental investigation of rating-market regulation (2017) Downloads
Working Paper: An experimental investigation of rating-market regulation (2016) Downloads
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