Optimal Organization of Surrogacy Contracts and Underinvestment

Amrita Pramanick () and Swapnendu Banerjee (Bandyopadhyay)
Additional contact information
Amrita Pramanick: Jadavpur University

Journal of Quantitative Economics, 2016, vol. 14, issue 2, No 4, 217-236

Abstract: Abstract We develop a theoretical model of commercial gestational surrogacy in which a childless couple approaches a prospective surrogate, who is willing to gestate for the couple. We use a Principal-Agent framework with continuous effort to argue the following: in presence of limited liability of the surrogate, provision of optimal incentives (under non-contractible effort) is not feasible. Hence, a surrogate facing low outside option and having limited wealth is always found to put in sub-optimal care for the fetus. Put differently, the surrogate cannot be made a residual claimant (cannot be entitled with custody rights of the fetus) and therefore eliciting first best care is never optimal. But this result dramatically changes when the model is cast in discrete effort where inefficiency is likely only when the surrogate faces low outside option whereas we get multiple efficient contracts for higher outside option. Moreover, we see first-best efficient contracts may be implemented even without full transfer of custody rights to the surrogate.

Keywords: Surrogate; Intended-parents; Surrogacy agency; Moral hazard; I11; J13; L14; L24 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40953-016-0035-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Optimal organization of surrogacy contracts and underinvestment (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jqecon:v:14:y:2016:i:2:d:10.1007_s40953-016-0035-6

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40953

DOI: 10.1007/s40953-016-0035-6

Access Statistics for this article

Journal of Quantitative Economics is currently edited by Dilip Nachane and P.G. Babu

More articles in Journal of Quantitative Economics from Springer, The Indian Econometric Society (TIES) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().