We compare a credit rating agency's incentives to acquire costly information when it is only paid for giving favorable ratings to the corresponding incentives when the agency is paid upfront, i.e. irrespective of the ratings assigned. We show that, in the presence of moral hazard,contingent fees...

We analyze how financial experts influence asset prices in a sequential trading model. In the model, an expert of unknown ability sends a report about asset values to traders, who then observe a signal about the expert's type. All information about the expert's ability is private to traders and...

Do asset prices aggregate investors’ private information about the ability of financial analysts? We show that as financial analysts become reputable, the market can get trapped: Investors optimally choose to ignore their private information, and blindly follow analyst recommendations. As time...