This paper addresses the question of how the principal's surplus and agency costs depend on the agent's wealth. Our main results are: If the agent has an additively separable utility function in income and effort and his degree of absolute prudence is smaller than three times the agent's degree...

This paper addresses the question of how the principal's surplus and agency costs depend on the agent's wealth. Using the first-order approach, we identify properties of the agent's utility function which are sufficient conditions to guarantee that richer agents induce a lower expected surplus...

We study the impact of insurance on the amount of fraud in a physician-patient relationship. In a market for credence goods, where prices are regulated by an authority, physicians act as experts. Due to their informational advantage, physicians have an incentive to cheat by inducing...

We examine the strategic interaction in the market for physician services when the total budget for reimbursement is fixed. We show that this prospective payment system involves ƒ{ compared to a fee-for-service remuneration system ƒ{ a severe coordination problem, which potentially leads to...