Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259401 
Year of Publication: 
2022
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
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.
Subjects: 
bonus payments
nonlinear incentive schemes
advisor incentivization
Document Type: 
Working Paper

Files in This Item:





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