Can a bonus overcome moral hazard? Experimental evidence from markets for expert services

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.JEL classification: C91, D03, D82, G20, I11

Reciprocity and gift exchange in markets for credence goods

“…Lastly, our results contribute to a wider literature on gift exchange. First, our findings are in line with principal-agent experiments focusing on bonus payments (see for example Angelova and Regner, 2018;Soraperra et al, 2019). In these studies, bonus payments made after observing an agent's decisions change the agent's behavior such that it results in higher payoffs for principals.…”

Theory and evidence on the credence component of energy-efficient technologies

“…Our results also contribute to a wider literature on gift exchange. First, our findings are in line with principal-agent experiments focusing on bonus payments (see for example Angelova and Regner, 2018;Soraperra et al, 2019). In these studies, bonus payments made after observing an agent's decisions change the agent's behavior such that it results in higher payoffs for principals.…”