In this theoretical analysis, the"principal"can be the head of the tax collection agency (or"government"or even citizens), the"supervisor"can be the tax collector, and the"agent"can be the taxpayer. The principal, interested in controlling an agent's socially costly activity ("cheating"), hires...

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...