Agents and Brokers as Intermediaries: Their Regulation in Germany

Most markets are characterized by imperfections, mostly market power and limited information. Under these circumstances, intermediaries like real estate agents and insurance brokers play an important role in the economy by facilitating exchange between third parties. As specialized entities they can transmit information, thereby lessening information asymmetries between market participants and can thus enhance the functioning of markets. This special role allows for opportunistic behavior by intermediaries, though. As long as the parties can write enforceable contracts that cover the relevant aspects of the intermediaries behavior, legal regulation is not necessary. In this paper it will be shown, though, that contracts are only partially able to solve possible principalagent problems and that the current legal rules in Germany are inefficient as they can not sufficiently control possible opportunistic behavior. A system of legal rules for intermediaries is sketched, taking into account that severe informa-tional asymmetry is more likely to arise if transactions are infrequent and learning does not take place.