Moral Hazard and the Internal Organization of Joint Research
AbstractLecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004We address the question of how the internal organization of partnerships can be affected by moral hazard behavior of their division(s)/agent(s). We explore cases where two entregreneurs, each employing one agent subject ot moral hazard, decide how to conduct a research project together. The project's success probability is affected by agent(s)' effort(s). A joint entity can take two configurations: either both, or only one agent is kept. If two agents are kept, all degrees of substitutability between agents' efforts are considered. We show that the privately optimal internal organization of the joint entity is also socially optimal, except when agents' efforts just start to duplicate each other. In this range, due to moral hazard, too few parterships keeping both agents occur as compared to what would be socially optimal. A restriction on the number of agents to be kept in a partnership would induce too few of them leading to socially worse outcomes.
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Bibliographic InfoPaper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2003-10.
Date of creation: Jun 2003
Date of revision:
Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
Other versions of this item:
- Fabrizi, Simona & Lippert, Steffen, 2004. "Moral Hazard and the Internal Organization of Joint Research," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 18, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
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