Agent-Principal Problem in Financial Distribution Cover Image

Agent-zákazník problém v distribuci finančních produktů
Agent-Principal Problem in Financial Distribution

Author(s): Jiří Šindelář, Petr Budinsky
Subject(s): Social Sciences, Economy
Published by: Vysoká škola ekonomická v Praze
Keywords: agent-principal problem; adverse selection; financial intermediation and advice; investment funds;unit-linked life insurance contracts;

Summary/Abstract: The paper deals with the agent-principal problem (adverse selection) in the distribution of investment products. Utilising data from the Czech financial market, a linear model with mixed effects was constructed, evaluating the relationship between remuneration of individual agents and quality-costs of the products they recommend. The results were structured for different organisational setups. We have found that in some less important environments from the market perspective (small and medium multi-level marketing networks, small and big pools, medium and big flat firms), there is a negative association between quality-cost of the contracted product and the amount of commission paid out to the agent. This indicates potential consumer detriment. In the majority of organisations dominating the industry, however, the direction of this relationship is positive in nature or statistically insignificant. Hence, the systemic potential for instigating the adverse selection was not detected in a major part of the market, bringing up regulatory implications in the conflict of interest and inducements area.

  • Issue Year: 66/2018
  • Issue No: 4
  • Page Range: 491-507
  • Page Count: 17
  • Language: Czech