Complaints Against Agents and Agents' Incentives: Evidence from Housing Transactions

Abstract

This paper investigates the impact of behavioral modifications of agents in the financial servicing industry to shield against the adverse effects on their reputation and career prospects while explicitly accounting for heterogeneity among agents. Our model shows that complaints incentivize agents to modify their self-interested behaviors if the agents believe their complaint records are likely to be known and considered to be unfavorable by future clients. The positive behavioral impacts are weakened by a decrease in such beliefs, a decrease in potential future losses, a decrease in the commission retained by agents, and an increase in the severity of the complaint. Empirical results using the real estate brokerage market in the province of Quebec in Canada as an experimental setting support our model predictions.

Keywords: Complaints against agents, Agent’s reputational concerns, House sale likelihood and price, Listing time on markets

JEL Classification: D9, D82, L14, L85, R31