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Non-Exclusive Financial Advice

We propose a simple model of non-exclusive .nancial advice in which two households rely on a self-interested (common) expert to make their investment choices. There is only one source of risk, and the expert is privately informed about the risky asset.s volatility. When monetary transfers are unenforceable, we show that investors may delegate their investment decisions to the expert. When doing so, however, they impose restrictions on her choices which crucially depend on whether the expert perceives investors.asset allocations as complements or as substitutes. Finally, we analyze the implications of non-exclusivity in .nancial advice on investment behavior and welfare, and highlight a set of novel testable implications.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 347.

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Date of creation: 10 Dec 2013
Date of revision: 13 Oct 2015
Publication status: Forthcoming in The Review of Finance
Handle: RePEc:sef:csefwp:347
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  1. Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
  2. David Martimort & Lars Stole, 2001. "Contractual Externalities and Common Agency Equilibria," CESifo Working Paper Series 581, CESifo Group Munich.
  3. Andrea Attar & Thomas Mariotti & François Salanié, 2010. "Non-Exclusive Competition in the Market for Lemons," CEIS Research Paper 159, Tor Vergata University, CEIS, revised 28 May 2010.
  4. Ricardo Alonso & Niko Matouschek, 2008. "Optimal Delegation," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 259-293.
  5. Hackethal, Andreas & Haliassos, Michael & Jappelli, Tullio, 2012. "Financial advisors: A case of babysitters?," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 509-524.
  6. Palomino, F.A. & Prat, A., 1998. "Risk Taking and Optimal Contracts for Money Managers," Discussion Paper 1998-108, Tilburg University, Center for Economic Research.
  7. Georgarakos, Dimitris & Inderst, Roman, 2011. "Financial advice and stock market participation," Working Paper Series 1296, European Central Bank.
  8. Judith A. Chevalier & Glenn D. Ellison, 1995. "Risk Taking by Mutual Funds as a Response to Incentives," NBER Working Papers 5234, National Bureau of Economic Research, Inc.
  9. Pavan, Alessandro & Calzolari, Giacomo, 2009. "Sequential contracting with multiple principals," Journal of Economic Theory, Elsevier, vol. 144(2), pages 503-531, March.
  10. Franklin Allen & Gary Gorton, 1993. "Churning Bubbles," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 813-836.
  11. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  12. Admati, Anat R & Pfleiderer, Paul, 1997. "Does It All Add Up? Benchmarks and the Compensation of Active Portfolio Managers," The Journal of Business, University of Chicago Press, vol. 70(3), pages 323-50, July.
  13. Bhattacharya, Sudipto & Pfleiderer, Paul, 1985. "Delegated portfolio management," Journal of Economic Theory, Elsevier, vol. 36(1), pages 1-25, June.
  14. Sanjiv Ranjan Das & Rangarajan K. Sundaram, 2002. "Fee Speech: Signaling, Risk-Sharing, and the Impact of Fee Structures on Investor Welfare," Review of Financial Studies, Society for Financial Studies, vol. 15(5), pages 1465-1497.
  15. Martimort, David & Semenov, Aggey, 2006. "Continuity in mechanism design without transfers," Economics Letters, Elsevier, vol. 93(2), pages 182-189, November.
  16. Roman Inderst & Marco Ottaviani, 2012. "Financial Advice," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 494-512, June.
  17. Goltsman, Maria & Hörner, Johannes & Pavlov, Gregory & Squintani, Francesco, 2009. "Mediation, arbitration and negotiation," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1397-1420, July.
  18. Stoughton, Neal M, 1993. " Moral Hazard and the Portfolio Management Problem," Journal of Finance, American Finance Association, vol. 48(5), pages 2009-28, December.
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