Moral hazard in repeated procurement of services

Esteve-Gonzalez, Patricia (2016) Moral hazard in repeated procurement of services. International Journal of Industrial Organization, 48. pp. 244-269. ISSN 0167-7187

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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.

Item Type:
Journal Article
Journal or Publication Title:
International Journal of Industrial Organization
Additional Information:
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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Deposited On:
15 Aug 2016 08:36
Last Modified:
22 Nov 2022 03:36