We use an experimental approach to study the effect of market structure on the incidence of misreporting by credit rating agencies. In the game, agencies receive a signal regarding the type of asset held by the seller and issue a report. The sellers then present the asset, with the report if one is solicited, to the buyer for purchase. We find that competition among rating agencies significantly reduces the likelihood of misreporting.

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.

We study the efficiency of dynamic portfolio choices using the nonparametric methods of Dybvig (1988) and Post (2003). We compare a dynamic portfolio task against an equivalent static Arrow-Debreu problem under two alternative environments: (1) nonpooled with 2^T terminal states and (2) pooled with T+1 unique terminal states. The results suggest that, within each environment, efficiency is lower in a static format and when the number of final states is larger. In the nonpooled dynamic task, which allows for path dependent strategies, we find that a form of stop-loss strategy drives efficiency losses.