Organization of Project Evaluation and Implementation under Moral Hazard

Peter-J. Jost and Frauke Lammers

Journal of Institutional and Theoretical Economics (JITE), 2010, vol. 166, issue 2, 212-238

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.

JEL-codes: D2 L2 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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