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Can a bonus overcome moral hazard? Experimental evidence from markets for expert services

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  • Angelova, Vera
  • Regner, Tobias

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.

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  • Angelova, Vera & Regner, Tobias, 2018. "Can a bonus overcome moral hazard? Experimental evidence from markets for expert services," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 362-378.
    • Handle: RePEc:eee:jeborg:v:154:y:2018:i:c:p:362-378
    DOI: 10.1016/j.jebo.2018.07.016
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    More about this item

    Keywords

    Asymmetric information; Principal–agent; Expert services; Deception game; Sender–receiver game; Reciprocity; Reputation; Experiments; Voluntary payment; Competition;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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