Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/253657 
Year of Publication: 
2017
Publisher: 
ZBW – Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
We analyze firms' competition to steer an advisor's recommendations through potentially non-linear incentives. Even when firms are symmetric, so that the overall size of compensation would not distort advice when incentives were linear, advice is biased when firms are allowed to make compensation nonlinear, which they optimally do. Policies that target an advisor's liability are largely ineffective, as firms react to such increased liability by making incentives even steeper, increasing bonus payments while reducing the linear (commission) part at the same time. This observation may justify policymakers' direct interference with firms' compensation practice, as frequently observed notably in consumer finance.
JEL: 
L51
M52
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.