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 Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 18.
Date of creation: Jul 2004
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internal organization of partnerships; moral hazard; efforts' interactions; cost functions;
Other versions of this item:
- Fabrizi, Simona & Lippert, Steffen, 2003. "Moral Hazard and the Internal Organization of Joint Research," DFAEII Working Papers 2003-10, University of the Basque Country - Department of Foundations of Economic Analysis II.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
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