Suppose you hired Janet, a real-estate agent, to help sell your house at the best possible price. As compensation, Janet will receive 3% of the selling price. Suppose Janet can sell the house in a few days by putting it on the market at $240,000, or she can advertise it for $260,000 and, after negotiating with prospective buyers, sell it for $250,000. The process of negotiation will take two weeks.
If Janet chooses the $260,000 option, you gain an additional $10,000, while Janet’s gain would be relatively small. If the house sells for $240,000, Janet receives . And if the house sells for $250,000, she gets . An extra $300 for the additional effort to attract the most suitable buyer appears to be a fairly weak incentive for Janet, considering that she could have moved on to the next commission rather than putting time and energy into selling your house. This is an example of ( the principal-agent problem, discount from residual claims, proprietorship, an explicit cost)