Does competition aggravate moral hazard? A Multi-Principal-Agent experiment

Rud, Olga A.; Rabanal, Jean Paul; Horowitz, John B.

doi:10.1016/j.jfi.2017.09.001

Cited by 24 publications

(10 citation statements)

References 14 publications

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“…Yet another strand of experimental studies suggests that even strong nancial incentives hardly interfere with agents' attempt to adhere to their clients' preferences (see, e.g.,Rud et al, 2018;Ifcher and Zarghamee, 2019;Kling et al, 2019).…”

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confidence: 99%

Delegation Decisions in Finance

et al. 2022

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We run an online experiment with nance professionals and subjects from the general population (clients) to examine drivers and implications of clients' delegation decisions. We nd that clients favor delegation to investment algorithms, followed by delegation to nance professionals with aligned incentives and lastly to those with xed incentives. We also show that trust in investment algorithms or money managers ( nance professionals), respectively, and clients' propensity to shift blame on others increases the likelihood of delegation, whereas own decision-making quality is associated with a decrease. In measuring the implications of clients' delegation decisions, we report high variability among nance professionals' perceptions of clients' preferred risk levels. We show that this results in overlaps in portfolio risk across risk-levels of clients, indicating problems of risk communication between clients and their money managers.

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confidence: 99%

Delegation Decisions in Finance

et al. 2022

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“…Such a ‘race to the bottom’ could occur in terms of lower service quality, not apparent to the customer, or in lowering of ethical standards. Shleifer (2004) provides a number of examples of this across a range of industries, while Egan et al (2019) and Rud et al (2018) are among recent papers examining the effect of competition on moral standards in the financial sector. Di Maggio et al (2016) find evidence of a ‘race to the bottom’ in terms of predatory lending upon the relaxation of regulation in the USA, which is more pronounced in areas where higher competition prevailed.…”

Section: Community Standards and Expectations And Competitionmentioning

confidence: 99%

The Hayne Royal Commission and financial sector misbehaviour: Lasting change or temporary fix?

Davis

2019

The Economic and Labour Relations Review

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The Hayne Royal Commission into Australian financial sector misbehaviour reported in February 2019. It is, however, unlikely to provide a lasting solution to problems of financial sector misbehaviour. It has identified a number of types of misbehaviour, their ‘proximate causes’ and recommended solutions to those. But, reflecting its limited mandate and limited time, it was unable to investigate the complex question of whether there are more deep-seated, fundamental issues driving financial sector misconduct, both in Australia and globally. This article argues that there are, and that consequently the benefits from the Royal Commission will be relatively short-lived, with misconduct likely to resurface, albeit in different guises. JEL Codes: G20, G28, K40

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“…Flannery and Roberts [28] found that nonmonotonic contracts with incentives are more conducive to resolving the principal-agent problem. Rubin and Sheremeta [29] and Rud et al [30] discussed the influence of competition on the moral hazard in the principal-agent relationship and pointed out the role of managerial labor market on personal incentives and equilibrium results.…”

Section: Introductionmentioning

confidence: 99%

Simulating the Principal‐Agent Relationship between Enterprise Owners and Professional Managers Using Evolutionary Game Theory and System Dynamics

et al. 2021

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The separation of ownership and management is a common operation mode in modern enterprises, which establishes the principal-agent relationship between modern enterprise owners and professional managers. Due to the information asymmetry and interest conflicts between the principal and agent, the principal-agent problem will occur and affect the efficiency of enterprise operations. Therefore, it is necessary to propose measures to improve the principal-agent relationship. This paper analyzed the principal-agent problem between enterprise owners and professional managers based on system dynamics, evolutionary game, and principal-agent theory and built a principal-agent evolutionary game model to analyze the rule of strategic choices and predict the equilibrium outcomes of different scenarios. In addition, the influence of different factors on strategic choices was simulated by the system dynamics model. The results depicted that the basic benefits and costs of cooperation are the key factors of the strategic choices, and the gap between the expected payoffs of different strategies also affects the probability of choosing those cooperative strategies. Proper supervision, standardization of the managerial labor market, and establishment of long-term incentives are crucial to cooperation between enterprise owners and professional managers.

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Does competition aggravate moral hazard? A Multi-Principal-Agent experiment

Cited by 24 publications

References 14 publications

Delegation Decisions in Finance

Delegation Decisions in Finance

The Hayne Royal Commission and financial sector misbehaviour: Lasting change or temporary fix?

Simulating the Principal‐Agent Relationship between Enterprise Owners and Professional Managers Using Evolutionary Game Theory and System Dynamics

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