Misselling Through Agents

Authors: Roman Inderst and Marco Ottaviani, (July 2007)

Abstract: This paper studies the implications of the inherent conflict between two tasks performed by sales agents: prospecting for customers and advising on the suitability of the product sold. When structuring their salesforce compensation, firms trade off the expected losses resulting from “misselling” with the agency costs of providing marketing incentives. We characterize how the equilibrium amount of misselling and the scope for policy intervention depend on a number of features of the identified agency problem, such as a firm’s internal organization of the sales process, the transparency of its commission structure, and the steepness of its agents’ sales incentives.

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