Tradeoff between Equity and Effciency in Revenue Sharing Contracts

Bogumił Kamiński and Maciej Latek ()

Central European Journal of Economic Modelling and Econometrics, 2010, vol. 2, issue 1, 1-16

Abstract: We investigate the problem of setting revenue sharing rules in a team production environment with a principal and two agents. We assume that the project output is binary and that the principal can observe the level of agents' actual effort, but does not know the production function. Identifying conditions that ensure the eficiency of the revenue sharing rule, we show that the rule of equal percentage markups can lead to inflation of project costs. This result provides an explanation for project cost overruns other than untruthful cost reporting.

Keywords: Moral Hazard; Team Production; Cost Inflation; Project Management (search for similar items in EconPapers)
JEL-codes: C72 D86 L24 M52 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:1:y:2010:i:4:p:1-16

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