Abstract - (Mis-)selling through Agents

Agents who are paid to originate sales are biased towards making deceptive statements or providing wrong advice so as to increase sales volume. Our model first investigates the factors that determine firms' costs to ensure compliance with a given standard of good practice, thereby determining when firms become more permissive towards misselling. Taking into consideration the underlying agency problem of the firm, we show how the response of policymakers and regulators should depend on the degree of competition, the organization of the sales process in the respective industry, or the transparency of the commission structure.

Roman Inderst
University of Frankfurt
22.May 2007

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