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Fees, Reputation, and Rating Quality

51 Pages Posted: 23 Dec 2015 Last revised: 14 Mar 2017

Jacopo Bizzotto

University of Oslo - Department of Economics

Date Written: March 13, 17

Abstract

I explore how compensation schemes a ect a rating agency's incentive to rate accurately. A sequence of short-lived rms can hire a long-lived agency to rate their projects. The agency can privately acquire costly information about the projects. The agency may be committed to acquiring information or be fully strategic. In equilibrium, the agency charges a fee only if a rated project is sold. I consider regulations that require the agency to collect part or all of its fee whenever hired. Whenever the agency is impatient, these regulations result in less informative ratings and lower welfare. I discuss policy implications.

Keywords: Credit Rating Agencies, Reputation, Information Acquisition, Cuomo Plan

JEL Classification: D82, D83, G24

Suggested Citation

Bizzotto, Jacopo, Fees, Reputation, and Rating Quality (March 13, 17). Available at SSRN: https://ssrn.com/abstract=2707069

Jacopo Bizzotto (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

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