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on Contract Theory and Applications |
| By: | Vera Angelova; Tobias Regner; |
| Abstract: | The market for retail nancial products (e.g. investment funds or insurances) is marred by information asymmetries. Clients are not well informed about the quality of these products. They have to rely on the recommendations of advisors. Incentives of advisors and clients may not be aligned, when fees are used by nancial institutions to steer advice. We experimentally investigate whether voluntary contract components can reduce the con ict of interest and increase truth telling of advisors. We compare a voluntary payment upfront, an obligatory payment upfront, a voluntary bonus afterwards, and a three-stage design with a voluntary payment upfront and a bonus after. Across treatments, there is signi cantly more truthful advice when both clients and advisors have opportunities to reciprocate. Within treatments, the frequency of truthful advice is signi cantly higher when the voluntary payment is large. |
| JEL: | C91 D03 D82 G20 L15 M52 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2016-030&r=cta |
| By: | Holger Herz; Armin Schmutzler; André Volk |
| Abstract: | Work and trade relationships are often governed by relational contracts, in which incentives for cooperative action today stem from the prospective future benefits of the relationship. In this paper, we study how reductions in clarity about the financial consequences of actions, induced by incomplete information about the costs of providing quality, affect relational contracts in buyer-seller relation- ships. Under incomplete information, payoffs to actions become private infor- mation. This can impede the joint understanding of what constitutes cooperative behavior, and may thus inject mistrust into relationships, even if credibility is held constant. Comparing seller-buyer relationships with and without complete infor- mation about seller costs in the laboratory, we find that such a lack of clarity has effects on the terms of relational contracts. However, these effects only concern the distribution of rents, and not efficiency. |
| Keywords: | Relational contracts, incomplete information, experiments |
| JEL: | D01 D03 L14 L20 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:233&r=cta |