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
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Moral hazard in repeated procurement of services
AU - Esteve-Gonzalez, Patricia
N1 - 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
PY - 2016/9
Y1 - 2016/9
N2 - 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.
AB - 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.
KW - Biased contest
KW - Moral hazard
KW - Incentives
U2 - 10.1016/j.ijindorg.2016.06.008
DO - 10.1016/j.ijindorg.2016.06.008
M3 - Journal article
VL - 48
SP - 244
EP - 269
JO - International Journal of Industrial Organization
JF - International Journal of Industrial Organization
SN - 0167-7187
ER -