We show that contracting in agency with voluntary participation may involve incentives for the agent's abstention. Their provision alters the optimality criteria in the principal's decision-making, further distorts the mechanism, and may lead to breakdown of contracting in circumstances where...

This paper addresses the class of agency problems with a risk-neutral principal and a risk-averse agent where hidden action and hidden information (on the agent's efficiency) are jointly present. The commonly used technological assumptions - such as the monotone-likelihood-ratio property (MLRP)...