Profit-Sharing Arrangements in a Team and the Cost of Information

The LEN-Model (referring to "linear functions", "exponential utility" and "normal distribution" as major properties of the LEN-Model) allows to study profit-sharing agreements in a team of principal and agent. First, this article describes and analyses the LEN-Model again (which was originally presented in 1987 by the same author). Second, agency costs are identified and calculated. Agency costs in a principal-agent relationship are seen as an information value. The question behind the nature of agency costs is: how much would principal and agent be willing to pay to overcome the disadvantages of asymmetric information they have in their relationship. The answer is given by the information value.