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  • Moral_Hazard_in_Repeated_Procurement_of_Services_Manuscript_Edition

    Rights statement: This is the author’s version of a work that was accepted for publication in International Journal of Industrial Organization. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Journal of Industrial Organization, 48, 2016 DOI: 10.1016/j.ijindorg.2016.06.008

    Accepted author manuscript, 4.71 MB, PDF document

    Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

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Moral hazard in repeated procurement of services

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Published
<mark>Journal publication date</mark>09/2016
<mark>Journal</mark>International Journal of Industrial Organization
Volume48
Number of pages26
Pages (from-to)244-269
Publication StatusPublished
Early online date11/07/16
<mark>Original language</mark>English

Abstract

This paper analyzes repeated procurement of services as a two period model with a potential repeated agency relationship. In the first period, there is an incumbent who provides a service. In the second period, there is a contest stage in which the principal selects the next service provider. The agents’ effort is non-contractible and the contest stage is the mechanism to mitigate potential moral hazard problems. The principal takes account of the past service effort in the contest stage by choosing the weight of past effort and the degree of substitutability between past and current efforts. The results show that, when the principal does not value contest effort, considering past effort as the relevant effort in the contest is optimal. When the principal values contest effort and effort cost increases, decreasing substitutability between efforts is optimal.

Bibliographic note

This is the author’s version of a work that was accepted for publication in International Journal of Industrial Organization. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Journal of Industrial Organization, 48, 2016 DOI: 10.1016/j.ijindorg.2016.06.008