On some agency costs of intermediated contracting

This paper identifies a new agency cost of intermediated contracting. A non productive intermediary can extract some rents when (a) the productive age nt has some private information and (b) the intermediary's sub-contract wit h the productive agent is not directly controlled by the top principal. We show that the intermediary's informational rent is an increasing and concav e function of the productive agent's own informational rent. (C) 2001 Elsev ier Science B.V. All rights reserved.