Commission sharing among agents

Abstract

When a principal hires an agent to do searching, she needs to motivate the agent to pay effort as well as to deliver a suitable result. Since different principals have different taste and the suitability of the search result is not entirely determined by the agents' effort, there is an opportunity for agents to cooperate among themselves and use commission sharing to match search results to principals. This paper studies how such fee-sharing arrangement affects the agents' incentive when exerting effort and principals' incentive when offering contracts. I show that principals would offer contracts with lower piece-rates and the agents would exert lower effort in searching when such arrangement is possible. However, efficiency may increase because the search results would be better matched to the principals.