Managerial Economics 13th Edition by James McGuigan,Charles Moyer,Frederick Harris

Exercise 13

Designing a Managerial Incentive Contract
Recall that in Chapter 1, Specific Electric Co. asked you to implement a payfor-performance incentive contract for its new CEO. Using your deeper knowledge of the principal-agent problem, try it again.
The Division of Investment Banking Fees in a Syndicate
You are the lead underwriter among a syndicate of five investment banks composed of yourself, the syndicate co-manager, and syndicate members 3, 4, and 5. Your syndicate finds a deal worth $100 million in fees. You must submit a proposal as to how the fees should be divided, and the syndicate then votes by majority rule.
Your syndicate is rational and democratic in the sense that the division of fees will be decided based upon maximization of absolute gain in this single deal, and the members also have reputational reasons in future deals (where the lower-ranked members hope to achieve more influence and get a higher-ranked position) to abide by a majority decision.
If your proposal is rejected by vote of the syndicate, you are displaced as lead underwriter, removed altogether from the deal making, and replaced by the co-manager, who then makes a proposal to the remaining four. If his deal is rejected, he too is removed, and syndicate member 3 makes a proposal to the three firms remaining, and so on.
In light of surprisingly light allocation to syndicate co-managers, why would any investment bank seek out such a role