Accountability in an agency model: Project selection,effort incentives,and contract design*

We analyze an agency model of project choice and implementation where the agent is held accountable for his performance. We show that implementation of the ex ante efficient project may be impossible, irrespective of how the principal sets fixed wage and bonus rate. If it is possible, the principal may be forced to increase the bonus rate above the optimal project‐specific rate. The higher profit share compensates the agent for pressure he faces when he has to justify/explain his performance.