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No cure, be paid: super-contingent fee contracts

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  • Lambert Schoonbeek
  • Peter Kooreman

Abstract

A general principal-agent problem with two possible outputs, high or low is considered. The agent's utility function is additively separable in wealth and effort. It is shown that under the optimal contract, the agent should pay a penalty fee to the principal if the low output occurs.

Suggested Citation

  • Lambert Schoonbeek & Peter Kooreman, 2005. "No cure, be paid: super-contingent fee contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 12(9), pages 549-551.
    • Handle: RePEc:taf:apeclt:v:12:y:2005:i:9:p:549-551
    DOI: 10.1080/13504850500142544
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    References listed on IDEAS

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    1. Rogerson, William P, 1985. "The First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 53(6), pages 1357-1367, November.
    2. Hay, Bruce L, 1996. "Contingent Fees and Agency Costs," The Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 503-533, June.
    3. Hay, Bruce L, 1997. "Optimal Contingent Fees in a World of Settlement," The Journal of Legal Studies, University of Chicago Press, vol. 26(1), pages 259-278, January.
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    Cited by:

    1. Machiel van Dijk & Michiel Bijlsma & Marc Pomp, 2006. "The price of free advice," CPB Discussion Paper 66, CPB Netherlands Bureau for Economic Policy Analysis.

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