We present a continuous-time contracting model under moral hazard with many agents. The
principal contracts many agents as a team, and they jointly produce correlated outcomes. We show
the optimal contract for each agent is linear in outcomes of all other agents as well as his/her own.
The structure of the optimal contract strikingly reveals that the optimal aggregate performance
measure in general can be orthogonally decomposed into two statistics: one is a sucient statistic,
and the other a non-sucient statistic. As a consequence, the optimal aggregate performance measure
in general is not a sucient statistic, unless the principal is risk neutral. We further discuss
agents` optimal e ort choices using a quadratic-cost' example, which also strikingly suggests that
team contracts sometimes provide lower-powered e ort incentives than individually separate contracts
do.
Key Words: principal-agent problem, many agents, moral hazard, team, performance measure,
contracts, continuous-time model, martingale method.