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Can a Bonus Overcome Moral Hazard? Experimental Evidence from Markets for Expert Services

Author

Listed:
  • Vera Angelova

    () (Technische Universität Berlin, Department of Economics and Management)

  • Tobias Regner

    () (FSU Jena)

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.

Suggested Citation

  • Vera Angelova & Tobias Regner, 2018. "Can a Bonus Overcome Moral Hazard? Experimental Evidence from Markets for Expert Services," Jena Economic Research Papers 2018-009, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2018-009
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    References listed on IDEAS

    as
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    Keywords

    asymmetric information; principal-agent; expert services; deception game; sender-receiver game; reciprocity; reputation; experiments; voluntary payment; competition;

    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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