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.

Sprache
Englisch

Klassifikation
Wirtschaft
Thema
bonus payments
nonlinear incentive schemes
advisor incentivization

Ereignis
Geistige Schöpfung
(wer)
Honda, Jun
Inderst, Roman
Ottaviani, Marco
Ereignis
Veröffentlichung
(wer)
ZBW - Leibniz Information Centre for Economics
(wo)
Kiel, Hamburg
(wann)
2022

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Honda, Jun
  • Inderst, Roman
  • Ottaviani, Marco
  • ZBW - Leibniz Information Centre for Economics

Entstanden

  • 2022

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