Kamil, Anton Abdulbasah *The Beneficial Effects Of Principal-Agent Problem.* Working Paper. Universiti Sains Malaysia.

## Abstract

This paper focus on a principal-agent problem in which the agent first learns an estimate of his production costs, then he has to decide whether to sink a fixed entry investment, and finally, if he has invested, the principal offers a price on a take-it-or-leave-it basis'. If the cost estimate is precise, we show that, in equilibrium, the agent will never invest, because then the investment itself signals low costs, which in turn will make the principal propose a lower price.

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