Other Peoples Money: An Experimental Study of the Impact of the Competition for Funds
نویسندگان
چکیده
This paper investigates the impact of the competition for funds in capital markets on the risk taking behavior of fund managers. In doing this we nd what we call an Other Peoples Moneye¤ect, or a tendency of people to invest the funds of others in riskier assets than they would invest their own funds. We nd that this excessive risk taking is not a result of poorly designed contracts since the Other Peoples Money e¤ect is present even when contracts properly align the interests of managers and investors. This does not mean that the proper design of contracts is irrelevant, however. For example, we nd that contracts promoting transparency of investment choices of managers seem to go a good distance in eliminating the problem. JEL Classi cation: D86, D92
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