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Organization of Project Evaluation and Implementation under Moral Hazard

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  • Peter-J. Jost
  • Frauke Lammers
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    Abstract

    We examine the optimal organizational form of project evaluation and implementation under moral hazard. In the evaluation phase, two fallible risk-neutral agents sequentially screen projects. The approved projects are subsequently implemented in the development phase. We show that moral hazard renders the organization as a polyarchy less attractive than as a hierarchy. Furthermore, given moral hazard, task assignment becomes relevant: For identical agents, the principal always delegates implementation to the agent who works first in the evaluation phase.

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    Bibliographic Info

    Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

    Volume (Year): 166 (2010)
    Issue (Month): 2 (June)
    Pages: 212-238

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    Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201006)166:2_212:oopeai_2.0.tx_2-u

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    Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
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    1. Fahad Khalil & Doyoung Kim & Dongsoo Shin, 2006. "Optimal Task Design: To Integrate or Separate Planning and Implementation?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 457-478, 06.
    2. Patrick W. Schmitz, 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 318-336, Summer.
    3. Visser, Bauke, 2000. "Organizational communication structure and performance," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 231-252, June.
    4. Laux, Christian, 2001. "Limited-Liability and Incentive Contracting with Multiple Projects," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 514-26, Autumn.
    5. Maria De Paola & Vincenzo Scoppa, 2006. "Organizational Design, Project Selection, and Incentives," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(3), pages 424-449, September.
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