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Conference Paper: Commission sharing among agents

TitleCommission sharing among agents
Authors
Issue Date2010
Citation
The 8th Annual International Industrial Organization Conference (IIOC), Vancouver, B.C., 14-16 May 2010. How to Cite?
AbstractWhen a principal hires an agent to create a result, she would like to motivate the agent to pay effort to increase the probability of a good fit with her own characteristics. However, an outcome that does not fit this principal may fit another, so her agent might have an incentive to divert a result to another principal through that principal's contracted agent. This is commonly achieved in practice through a fee-sharing arrangement among the agents. This paper studies how such result-diverting and fee-sharing arrangement affect the agents' incentive to exert efforts and the principals' incentive when offering contracts. We show that, under fee-sharing arrangement, a contract signed between a principal and her agent is able to influence the future transfers among the agents when they bargain, so each principal has incentive to lower her commission (the reward for a good _t) to reduce the outflows of surplus to other principals. Also, the ability of the commission to motivate effort in an agent decreases when fee-sharing is allowed. These two effects together lower the equilibrium effort levels compared to the benchmarks where fee-sharing is not possible. As a result, efficiency is improved as the agents' efforts would have been wastefully high in the absence of fee-sharing.
DescriptionSession 81: Vertical Contracts
Persistent Identifierhttp://hdl.handle.net/10722/130268

 

DC FieldValueLanguage
dc.contributor.authorXu, Zen_US
dc.date.accessioned2010-12-23T08:48:39Z-
dc.date.available2010-12-23T08:48:39Z-
dc.date.issued2010en_US
dc.identifier.citationThe 8th Annual International Industrial Organization Conference (IIOC), Vancouver, B.C., 14-16 May 2010.en_US
dc.identifier.urihttp://hdl.handle.net/10722/130268-
dc.descriptionSession 81: Vertical Contracts-
dc.description.abstractWhen a principal hires an agent to create a result, she would like to motivate the agent to pay effort to increase the probability of a good fit with her own characteristics. However, an outcome that does not fit this principal may fit another, so her agent might have an incentive to divert a result to another principal through that principal's contracted agent. This is commonly achieved in practice through a fee-sharing arrangement among the agents. This paper studies how such result-diverting and fee-sharing arrangement affect the agents' incentive to exert efforts and the principals' incentive when offering contracts. We show that, under fee-sharing arrangement, a contract signed between a principal and her agent is able to influence the future transfers among the agents when they bargain, so each principal has incentive to lower her commission (the reward for a good _t) to reduce the outflows of surplus to other principals. Also, the ability of the commission to motivate effort in an agent decreases when fee-sharing is allowed. These two effects together lower the equilibrium effort levels compared to the benchmarks where fee-sharing is not possible. As a result, efficiency is improved as the agents' efforts would have been wastefully high in the absence of fee-sharing.-
dc.languageengen_US
dc.relation.ispartofAnnual International Industrial Organization Conference-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleCommission sharing among agentsen_US
dc.typeConference_Paperen_US
dc.identifier.emailXu, Z: zfxu@hku.hken_US
dc.description.naturepostprint-
dc.identifier.hkuros178147en_US

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