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Holding onto Your Horses: Conflicts of Interest in Asset Management

  • Glenn Boyle
  • Graeme Guthrie
  • Luke Gorton

Racehorse trainers operate unregulated asset management businesses in which the assets owned by outside clients compete with those owned by trainers for the latter's time, care, and attention. However, market mechanisms appear to deal effectively with the resulting agency problem in situations where it matters most. In a sample of 8,000 racehorses and their associated stables, we find that client-owned horses do indeed perform worse than their trainer-owned counterparts in small stables that have relatively few outside clients but that the reverse is true in large stables where client-owners provide much of the trainer's income: agents with more to lose apparently behave better. Moreover, they appear to have good reasons for behaving better: client-owned horses that underperform are more likely to be transferred to another stable, thereby causing a loss of income for the original trainer.

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File URL: http://dx.doi.org/10.1086/649644
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File URL: http://dx.doi.org/10.1086/649644
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 53 (2010)
Issue (Month): 4 ()
Pages: 689 - 713

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Handle: RePEc:ucp:jlawec:doi:10.1086/649644
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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