Under which one of the following contracts does an agent have the least incentive to behave opportunistically?
A) The agent pays a fixed fee to the principal for the right to all future payoffs.
B) The agent works for the principal on an hourly basis.
C) The agent receives a share of the profit.
D) The agent works for the principal on a per unit basis.

Question

Quizplus · Accepted Answer

In option A, since the agent pays a fixed fee for the right to all future payoffs, they have a strong incentive to maximize those payoffs, aligning their interests closely with the principal's. This setup minimizes the agent's incentive to behave opportunistically because their earnings are directly tied to the success of the venture, unlike the other options where the agent's compensation is less directly connected to overall performance.

Under Which One of the Following Contracts Does an Agent