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Misselling (financial) products: The limits for internal compliance


  • Inderst, Roman


A firm advises customers through an agent, such as a mortgage broker, who is incentivized through commissions and the threat of firing. We show that this implies an upper boundary for the feasible "standard of advice", up to which the standard increases with commissions.

Suggested Citation

  • Inderst, Roman, 2010. "Misselling (financial) products: The limits for internal compliance," Economics Letters, Elsevier, vol. 106(1), pages 35-37, January.
  • Handle: RePEc:eee:ecolet:v:106:y:2010:i:1:p:35-37

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    References listed on IDEAS

    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, July.
    2. Tim Oliver Berg, 2013. "Cross-country evidence on the relation between stock prices and the current account," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2267-2277, June.
    3. Amiya K. Basu & Rajiv Lal & V. Srinivasan & Richard Staelin, 1985. "Salesforce Compensation Plans: An Agency Theoretic Perspective," Marketing Science, INFORMS, vol. 4(4), pages 267-291.
    4. Roman Inderst & Marco Ottaviani, 2009. "Misselling through Agents," American Economic Review, American Economic Association, vol. 99(3), pages 883-908, June.
    5. Genberg, Hans & Hui, Cho-Hoi, 2008. "The credibility of 'The Link' from the perspective of modern financial theory," IMFS Working Paper Series 18, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    6. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2004. "Conflicts of Interest, Information Provision, and Competition in Banking," NBER Working Papers 10571, National Bureau of Economic Research, Inc.
    7. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
    8. Ho, Chun-Yu & Ho, Wai-Yip Alex, 2009. "On the sustainability of currency boards: Evidence from Argentina and Hong Kong," IMFS Working Paper Series 20, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    9. Schmidt, Reinhard H. & Hryckiewicz, Aneta, 2006. "Financial systems - importance, differences and convergence," IMFS Working Paper Series 4, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
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    Cited by:

    1. repec:eee:ecolet:v:162:y:2018:i:c:p:167-170 is not listed on IDEAS
    2. Beyer, Max & de Meza, David & Reyniers, Diane, 2013. "Do financial advisor commissions distort client choice?," Economics Letters, Elsevier, vol. 119(2), pages 117-119.

    More about this item


    Advice Financial services Commissions;

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects


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