Arbeitspapier
When Liability is Not Enough: Regulating Bonus Payments in Markets With Advice
We introduce a model of advice in which firms steer advisors through nonlinear incentive schemes. In addition to developing an isomorphism to pricing with mixed bundling, we obtain three main insights. First, firms optimally use nonlinear bonuses to economize on the rent paid to advisors. Second, equilibrium bonus payments induce advisors to make biased recommendations that are artificially contingent on each other, resulting in an inefficient allocation. Third, if advisor liability is stepped up, firms respond by increasing the size of the bonus, leaving advisor bias unchanged. These results support direct regulatory interference on the way advisors are compensated.
- Language
-
Englisch
- Classification
-
Wirtschaft
- Subject
-
bonus payments
nonlinear incentive schemes
advisor incentivization
- Event
-
Geistige Schöpfung
- (who)
-
Honda, Jun
Inderst, Roman
Ottaviani, Marco
- Event
-
Veröffentlichung
- (who)
-
ZBW - Leibniz Information Centre for Economics
- (where)
-
Kiel, Hamburg
- (when)
-
2022
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Honda, Jun
- Inderst, Roman
- Ottaviani, Marco
- ZBW - Leibniz Information Centre for Economics
Time of origin
- 2022
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