Introduction

Research activities are essential to the proper development and progress in any scientific
sphere, and clinical psychology is not exclusion. The number of research studies in this field has
been on the rise during the last decade. The most popular psychology studies conducted in
clinical settings are studies establishing the effectiveness of psychotherapeutic treatments for
particular disorders. These studies are usually sponsored by provincial or federal research boards,
which provide affiliated practitioners with a fixed amount of funds necessary to conduct a
research. As a principal, the research board pursues a complete study trial with valid results and
accurate data collected about the specific disorder or psychological effect. In general, the
research board wants the newly obtained information to reflect closely the reality and be
generalizable for a vast majority of patients. However, there is a potential problem with the kind
of compensation research board has chosen. As a psychologist gets paid a fixed grant for the
research he or she conducts, there is no incentive for this psychologist to provide each of the
patients participating in the research with a quality treatment. In many cases, psychologists
conducting the research limit their interaction with patients to a simple assessment of patients
symptoms and forget about establishing a more meaningful therapeutic relationship. There are
many possible explanations of why psychologists do not do their job properly. In the very worst
case, a psychologist may be not interested in the study at all and only participate in the research
because of the grant. Alternatively, the allegiance effect may complicate the research study:
psychologists may favor one kind of therapy over the other, and thereby will only apply this
therapy successfully. In any case, the result of the aforementioned issue is that many patients
participating in research remain undertreated, and the research board does not receive the valid
study results it desires. The discussed problem clearly arises from the fact that the research board

cannot directly observe and verify actions of its agent psychologist, who is doing the research.
Additionally, the fixed grant does not always provide the psychologist with sufficient motivation
to administer well-qualified treatment to each individual client. If the research board could
directly observe psychologists actions this issue would not arise, and it would be possible to
compensate psychologist with a fixed grant. However, as the research board does not have a
possibility to do so, it needs to design a new contract.
This paper will discuss the aspects impacting the behavior of psychologists engaged in
research activities. It will also attempt to design a more effective contract compensating the
psychologist not only for participating in the research, but also for the quality of treatment
provided to his or her clients.
Analysis of additional factors affecting agents payment
Psychologists compensation for conducting a research can be determined by multiple factors.
Risk preferences of both parties involved in the relationship, possibility of using additional
signals, presence of multitasking, existence of non-financial incentives and objective measures of
performance all play a role in creation of an optimal contract.
Speaking about risk preferences of the agent and the principal in a given case, it is only
possible to discuss risk attitudes in relative terms. A psychologist, as an agent, is more likely to
be risk-averse. When starting the study, the therapist does not always have complete information
about the efficacy of the tested psychotherapy. Accordingly, there is always a possibility that the
studied method turns out to be ineffective for the treatment of a given disorder. Therefore, it will
be in the best interests of the psychologist to be insured from the possible complaints of
dissatisfied patients and their families. At the same time, it would be unreasonable to maintain
that the research board is completely risk-neutral. Although there are hundreds of studies

conducted each year, and some of them are definitely successful, research board still would not
like to invest money in research of therapy, which cannot be applied to clinical treatment. Thus,
the research board is also risk-averse, even though it is probably less so than an average
psychologist. Based on what was said above, it is plausible to imply that the effective contract
between the psychologist and the research board should include both fixed salary and pay-perservice commission. This contract model would allow for a proper risk sharing between the
participating parties.
Using additional signals to evaluate the performance of the psychologist can be quite
problematic in the clinical environment. One way to apply an additional signal to solving this
problem may be having several treatment groups, each undergoing same therapy with a different
psychologist. Taking the average percent of the improvement in these groups can help to separate
the effect of therapy from the effect of therapist and will be a good signal of psychologists
effort. However, additional complications may arise from this practice, such as competition
between different psychologists, or inadequate selection of patients for the study. Thus, although
using the additional signal can be informative about the quality of treatment every individual
psychologist delivers; it can still be difficult to use it in a research environment.
Another issue that needs to be discussed in the given analysis is the presence of multitasking
in a clinical psychology research. Research activities apparently include multiple tasks requiring
different levels of expertise. When it comes to the interaction with patients, however, the major
responsibilities of psychologists involve assessing the patients and applying therapy to them. As
it was stated before, the quality of the therapy is rather difficult to observe or verify; the quantity
of the assessed patients, on the other hand, can be calculated very easily. The research board
usually wants the number of the observed patients to be as large as possible for the statistical

significance of the study. It is also in the research boards best interests to provide patients with
the best possible quality of treatment. According to the economic theory, when one of the factors
affecting the outcome is unobservable, but the other can be observed and verified, it is rational to
separate the tasks. In the discussed case, one possibility for dividing the tasks may be hiring one
psychologist for patient assessment and another one for periodical therapy sessions. Having two
different psychologists for symptoms assessment and delivering psychotherapy should not
significantly impair the quality of psychotherapy: the patient will still spend enough time and
will be able to develop a confiding relationship with the psychologist delivering psychotherapy.
However, it is worth noting that such practice may be quite costly for the research board.
Summing up everything that was said about separating assessment and therapy tasks, it may be
beneficial for the research board to hire another psychologist if it does not impair the quality of
therapy.
An additional issue worth discussing in the analysis of this principal-agent relationship is the
presence of non-financial incentives. It can be reasonably implied that the agent in this
relationship is motivated by reasons different from clearly financial rewards. Altruism is
oftentimes the leading motivation for persons choosing a career of clinical psychologists.
Therefore, one can infer that many therapists actually do care a lot about the outcomes of their
work. Given that there is a substantial rate of intrinsic motivation in the agents perspective, it
would be plausible not to put too much weight on the bonus part of the compensation.
Lastly, it is necessary to address the use of objective measures for evaluation of the
psychologists performance. A measure that is most likely to be used for this purpose is the
percentage improvement in patients scores on various rating scales of the disease severity (e.g.
BDI, HRSD, HAM-A, etc.) before and after treatment. The rating scales are a quick and easy

way to assess the severity of the disease at any given point of time. Besides, rating scales for a
particular disorder usually account for the whole range of symptoms characterizing this disorder,
which makes the scores on them a good representation of the patients progress. These scores are
easy to obtain during the patients assessment and they can be precisely calculated. At the same
time, there are no plenty of opportunities for the psychologist to affect these ratings. The only
possible way psychologist can deflect scores in his or her favor is to bluntly misreport them.
Although there is a chance for this to occur, this is unlikely to happen given that a psychologist is
intrinsically motivated by altruistic pursuits. Therefore, the patients scores on rating scales of the
disease can be used as an objective criterion of psychologists performance.
In conclusion, it is worth pointing out that several changes might be taken to promote a more
efficient contract between the psychologist and the research board. The risk aversion of both
parties should be taken into account, and the contract should include a performance-based part.
The research board should very carefully consider the use of any additional signals and its
consequences. In addition, the research board may contemplate hiring an additional psychologist
for the patient assessment. Finally, the presence of non-financial incentives and objective
measures of performance should also be attended to when designing a contract.
Designing a new contract
A new contract should attempt to heighten the efficiency of the principal-agent relationship
between psychologist and research board. This relationship would be maximally effective if the
psychologist exerted the amount of effort, which would equate marginal benefit from the
relationship to its marginal cost. Even though the new contract would pursue to achieve such
level of effort, it would still be impossible, given that the principal cannot completely observe
and verify agents actions, and there is a degree of uncertainty in the outcome in the relationship.

Hence, risk-aversion, additional signals, multiple tasks, non-financial incentives and objective
measures of performance should be taken into account when designing a contract.
As it was mentioned before, both psychologist and research board are risk-averse. This
implies that the current way of compensation (fixed research grant) might not be the most
effective way to share risk between the parties. In the new contract, the risk sharing would be
organized more efficiently, and the contract will include both fixed and pay-for-performance
types of compensation. Given that the research board is less risk-averse than an individual
psychologist, more weight will still be put on the fixed salary in a new contract. This will provide
the psychologist with adequate risk insurance. At the same time newly emerged pay-forperformance part of the contract will provide risk insurance to the research board. In such a way,
both parties will be effectively insured from uncertainty, and the psychologist will also have a
better incentive to improve his or her performance.
It is noteworthy that relative risk-aversion is not the only reason why more weight should be
put on the fixed payment. Assuming that psychologist has a relatively strong intrinsic motivation
to provide his or her clients with psychotherapy of superb quality, the principal should avoid
greatly stressing the financial incentives. Rather, to improve the outcome, the research board may
encourage enhancement of therapy skills and level of psychologists expertise. In such a way, the
research board will bolster the psychologists motivation. This will also allow avoiding crowding
out of intrinsic motivation by financial incentives, a case, in which the agent cares more about
the monetary reward than about the patients well-being. To prevent crowding out from
occurring, the pay-for-performance part of the contract should never exceed the fixed part.
Another important issue that is necessary to attend to when designing a new contract is the
presence of multiple tasks in the work of a psychologist. It was discussed before that one of the

most distressing malfunctions of the present system is that many psychologists participating in
research limit their interaction with patients to the periodical assessment of their symptoms, and
as the result, the patients are left almost unexposed to the psychotherapy. The new contract
should attempt to avoid this unlikely outcome. One of the ways to do so is to separate assessment
from the delivering of psychotherapy. As it was previously discussed, hiring an additional
psychologist for the assessment of the patients symptoms may be quite beneficial, and if the
research board has additional funds to invest in the study, it should definitely consider this
option. Employing another person for patient assessment will leave the first psychologist with
one major task delivering the psychotherapy. The research board can clearly observe and verify
the actions of the assessing psychologist, and, therefore, can pay him or her on the pay-forperformance basis: the more clients psychologist assesses, the better he or she gets paid. The
psychologist, who is delivering therapy will be paid according to the previously discussed mixed
contract: the bigger part of their payment will be fixed, when the smaller part will depend on the
quality of delivered psychotherapy.
Using an objective measure of performance is one of the ways, which economic theory
suggests for evaluating the effort in the case when it cannot be observed or verified. One of the
key characteristics of the objective measure of performance is the principals ability to directly
observe this measure. As it was noted in the analysis, patients scores on the disease rating scales
could provide the research board with a good objective measure of psychologists performance.
If the research board wants a good representation of the psychologists work, all it should do is
just look at the patients scores on rating scales taken regularly during the study. Thereby, the
bonus part of the psychologists compensation can be based on the percentage of the patients
score improvement between the beginning and the end of the study. Another factor that makes

rating scale scores a good objective measure of agents performance is the fact that there are very
few opportunities for the psychologist to manipulate these scores. Hence, the percent of
improvement of the patients scores on rating scales specific to individual disorders will serve a
good objective measure of the quality of delivered psychotherapy.
The last issue worth discussing is the application of additional signals in determining the
psychologists wage. According to economic theory, additional signals should be the variables
affecting the outcome, but not affected by the agents actions. The additional signal should be
correlated with agents wage in a way, which is opposite to its correlation with the outcome.
Although one could think of using an average improvement in patients treated by different
psychologists as an additional signal, there are many obstacles to the application of it as such.
This may create an unnecessary competition between psychologists participating in research, or
inadequate patient selection, e.g. a psychologist choosing patients for the depression study gives
preference to those, who have recently started taking antidepressants. Such behavior can
jeopardize the scientific nature of research and validity of obtained results. To avoid this pitfall, it
would be reasonable not to include additional signals in the new contract at all.
Summing up, the new contract for clinical psychologist delivering psychotherapy will include
two parts: fixed salary and a bonus. Fixed salary will be given more weight than the bonus, as the
psychologist is more risk-averse than the research board and is on average altruistic. The
percentage of improvement in patients scores on the disorder rating scale will be used as an
objective measure of therapists performance. Besides, the new contract will divide the
assessment and therapy tasks by hiring a new psychologist for patient assessment. The
application of the additional signals may complicate the research activity and, therefore, it would
be plausible not to use additional signals to determine agents wage.

Conclusion
In conclusion of this paper, it is worth noting that the major incentive problem discussed was
the fact that in some cases clinical psychologists participating in research activities failed to
provide their patients with psychotherapy of an adequate quality. Instead, their interaction with
patients is often limited to periodic assessment of the disease symptoms. This issue presents a
potential menace to the validity of results obtained from the research studies. These studies are
usually sponsored by the research board, which cannot observe psychologists actions and
allocates a fixed grant for the research. Hence, one can infer that the discussed problem arises
from the insufficient incentive. The analysis, presented above has revealed that both agent and
principal in this relationship are risk-averse. Therefore, the psychologists compensation should
include both fixed and variable payment. Fixed payment should be prioritized though because
the psychologist is more risk-averse and altruistic to a certain degree. Likewise, the research
board should consider hiring a new psychologist specifically for patient assessment to separate
assessment and therapy delivery tasks. The improvement in patients scores on the disease rating
scales can be used as an objective measure of psychologists performance. The use of additional
signals is, however, unlikely to be very successful in the research environment and, thereby, is
not recommended. Thus, an approximate example of the new approach to the discussed
principal-agent relationship will be the following: research board provides the psychologist with
a fixed grant of 5000$ for participation in the research; it hires an additional psychologist for
patient assessment and pays him at the rate of 30$ per assessed patient; the psychologist
delivering the therapy also receives a bonus of 100$ for each patient, whose scores on rating
scale have improved by 50% or more from their original value. A contract similar to this would
allow to solve the incentive and multitasking problems in the given principal-agent relationship.