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Conference Paper: Commission sharing among agents
Title | Commission sharing among agents |
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Authors | |
Issue Date | 2010 |
Citation | The 8th Annual International Industrial Organization Conference (IIOC), Vancouver, B.C., 14-16 May 2010. How to Cite? |
Abstract | When 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. |
Description | Session 81: Vertical Contracts |
Persistent Identifier | http://hdl.handle.net/10722/130268 |
DC Field | Value | Language |
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dc.contributor.author | Xu, Z | en_US |
dc.date.accessioned | 2010-12-23T08:48:39Z | - |
dc.date.available | 2010-12-23T08:48:39Z | - |
dc.date.issued | 2010 | en_US |
dc.identifier.citation | The 8th Annual International Industrial Organization Conference (IIOC), Vancouver, B.C., 14-16 May 2010. | en_US |
dc.identifier.uri | http://hdl.handle.net/10722/130268 | - |
dc.description | Session 81: Vertical Contracts | - |
dc.description.abstract | When 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.language | eng | en_US |
dc.relation.ispartof | Annual International Industrial Organization Conference | - |
dc.title | Commission sharing among agents | en_US |
dc.type | Conference_Paper | en_US |
dc.identifier.email | Xu, Z: zfxu@hku.hk | en_US |
dc.description.nature | postprint | - |
dc.identifier.hkuros | 178147 | en_US |