Does competition aggravate moral hazard? A Multi-Principal-Agent experiment

Olga A. Rud, Jean Paul Rabanal, John Horowitz

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)


We conduct an experiment to determine whether market structure affects financial intermediary behavior. The intermediaries (Agents) are perfectly informed regarding project types and can recommend that their clients (Principals) either proceed or discontinue a project. Intermediaries earn revenues only when they recommend proceeding with the transaction. Thus, our design captures some of the incentives faced by financial advisers in commercial banks, where compensation depends on sales performance, and also by money-managers, whose income depends on the size of their portfolios. We find that a monopolist intermediary protects the interest of clients better than when intermediaries compete. Our results are robust to a significant fee increase and provide additional evidence on the impact of market structure on individual incentives and equilibrium outcomes.

Original languageEnglish
Pages (from-to)115-121
Number of pages7
JournalJournal of Financial Intermediation
Publication statusPublished - 1 Jan 2018
Externally publishedYes


  • Conflict of interests
  • Deception
  • Delegated portfolio management
  • Laboratory experiment
  • Market design
  • Rating services

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