Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148919
Authors: 
Keser, Claudia
Özgümüs, Asri
Peterlé, Emmanuel
Schmidt, Martin
Year of Publication: 
2017
Series/Report no.: 
Discussion Papers, Center for European, Governance and Economic Development Research 299
Abstract: 
We introduce a simple game-theoretical model that captures the main aspects of the repeated interaction between an issuer and a credit-rating agency. It involves up-front payments of issuer-fees and direct publication of requested ratings. Due to pecuniary injuries for untruthful ratings, the creditrating agency should always report truthfully in the subgame perfect equilibrium. Knowing this, the issuer should never request a rating. Conducting laboratory experiments, we find that behavior significantly deviates from the equilibrium prediction in favor of a cooperative solution: issuers frequently do request ratings, which is often reciprocated with untruthful good ratings.
Subjects: 
game theory
laboratory experiments
rating agencies
regulation
JEL: 
C70
C9
G0
Document Type: 
Working Paper

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