Are you a good employee or simply a good guy? Influence costs and contract design

► We consider a principal-agent model in which the agent can undertake influence activities. ► Influence activities allow the agent to distort the supervision signal collected by the principal. ► Influence activities entailing private costs to the agent lead to low powered incentives. ► When influence activities entail costs for the organization high powered incentives can be optimal. ► The principal may decide not to supervise the agent even if it is costless to do so.