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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. Georgarakos, Dimitris & Inderst, Roman, 2011. "Financial advice and stock market participation," Working Paper Series 1296, European Central Bank.
  2. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  3. 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.
  4. Palomino, Frederic & Prat, Andrea, 2003. " Risk Taking and Optimal Contracts for Money Managers," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 113-37, Spring.
  5. Chevalier, J. & Ellison, G., 1996. "Risk Taking by Mutual Funds as a Response to Incentives," Working papers 96-3, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Giacomo Calzolari & Alessandro Pavan, 2007. "Sequential Contracting with Multiple Principals," Discussion Papers 1457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Attar, Andrea & Mariotti, Thomas & Salanié, François, 2009. "Non-Exclusive Competition in the Market for Lemons," IDEI Working Papers 558, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Stoughton, Neal M, 1993. " Moral Hazard and the Portfolio Management Problem," Journal of Finance, American Finance Association, vol. 48(5), pages 2009-28, December.
  9. 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.
  10. Alonso, Ricardo & Matouschek, Niko, 2005. "Optimal Delegation," CEPR Discussion Papers 5289, C.E.P.R. Discussion Papers.
  11. Roman Inderst & Marco Ottaviani, 2012. "Financial Advice," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 494-512, June.
  12. David Martimort & Lars Stole, 2001. "Contractual Externalities and Common Agency Equilibria," CESifo Working Paper Series 581, CESifo Group Munich.
  13. Hackethal, Andreas & Haliassos, Michael & Jappelli, Tullio, 2012. "Financial advisors: A case of babysitters?," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 509-524.
  14. 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.
  15. Franklin Allen & Gary Gorton, 1993. "Churning Bubbles," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 813-836.
  16. Martimort, David & Semenov, Aggey, 2006. "Continuity in mechanism design without transfers," Economics Letters, Elsevier, vol. 93(2), pages 182-189, November.
  17. Bhattacharya, Sudipto & Pfleiderer, Paul, 1985. "Delegated portfolio management," Journal of Economic Theory, Elsevier, vol. 36(1), pages 1-25, June.
  18. 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.
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