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Misselling through agents

Listed author(s):
  • Inderst, Roman
  • Ottaviani, Marco

This paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents: prospecting for customers and advising on the product's suitability for the specific needs of customers. When structuring sales-force compensation, firms trade off the expected losses from misselling unsuitable products with the agency costs of providing marketing incentives. We characterize how the equilibrium amount of misselling (and thus the scope of policy intervention) depends on features of the agency problem including: the internal organization of a firm's sales process, the transparency of its commission structure, and the steepness of its agents' sales incentives.

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File URL: https://www.econstor.eu/bitstream/10419/97742/1/IMFS_WP_36.pdf
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Paper provided by Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS) in its series IMFS Working Paper Series with number 36.

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Date of creation: 2009
Handle: RePEc:zbw:imfswp:36
Contact details of provider: Web page: http://www.imfs-frankfurt.de/en.html
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  1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, January.
  2. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2004. "Conflicts of Interest, Information Provision, and Competition in Banking," NBER Working Papers 10571, National Bureau of Economic Research, Inc.
  3. Minton, Bernadette & Sanders, Anthony & Strahan, Philip E., 2004. "Securitization by Banks and Finance Companies: Efficient Financial Contracting or Regulatory Arbitrage?," Working Paper Series 2004-25, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  4. Steven D. Levitt & Christopher M. Snyder, 1997. "Is No. News Bad News? Information Transmission and the Role of "Early Warning" in the Principal-Agent Model," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 641-661, Winter.
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