Interlocked Contracts

Susanna Sallstrom

CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: Brokers face a trade-off between searching for the buyer with the highest willingness to pay and the value of a higher turnover rate. For this reason the agent's interests will not coincide with those of the principal (seller), even if there is no cost of effort and the agent gets a proportional share of the sales price. In markets characterised by chain-transactions, a minimum-price clause therefore plays a crucial role. This is because a minimum price convexifies a flat-rate scheme, thus providing the agent with stronger incentives to behave in the interest of the prinipal.

Keywords: Principal-agent; incentive scheme; interlocked contracts (search for similar items in EconPapers)
JEL-codes: D81 L14 (search for similar items in EconPapers)
Date: 1999-10
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:9917

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