Rights Creative Commons: Attribution 3.0 Hong Kong License Commission Sharing and Search Agents∗

When a principal hires an agent to do searching, she needs to mo-tivate the agent to pay effort as well as to deliver a suitable result. Since different principals have different taste and the suitability of the search result is not entirely determined by the agents ’ effort, there is an opportunity for agents to cooperate among themselves and use commission sharing to match search results to principals. This paper studies how such fee-sharing arrangement affects the agents ’ incentive when exerting effort and principals ’ incentive when offering contracts. I show that principals would offer contracts with lower piece-rates and the agents would exert lower effort in searching when such arrange-ment is possible. However, efficiency may increase because the search results would be better matched to the principals.