Misselling through agents

  • This paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents: prospecting for customers and advising on the product's "suitability" for the specific needs of customers. When structuring sales-force compensation, firms trade off the expected losses from "misselling" unsuitable products with the agency costs of providing marketing incentives. We characterize how the equilibrium amount of misselling (and thus the scope of policy intervention) depends on features of the agency problem including: the internal organization of a firm's sales process, the transparency of its commission structure, and the steepness of its agents' sales incentives. JEL Classification: D18 (Consumer Protection), D83 (Search; Learning; Information and Knowledge), M31 (Marketing), M52 (Compensation and Compensation Methods and Their Effects).

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Author:Roman InderstORCiDGND, Marco Ottaviani
Parent Title (German):Working paper series / Institute for Monetary and Financial Stability ; 36
Series (Serial Number):Working paper series / Institute for Monetary and Financial Stability (36)
Document Type:Working Paper
Year of Completion:2009
Year of first Publication:2009
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2009/12/08
GND Keyword:Agency-Theorie; Verbraucherschutz
Published in: American Economic Review, 2009, vol. 99, issue 3, pp. 883-908
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht