EconPapers    
Economics at your fingertips  
 

Moral Hazard in Repeated Procurement of Services

Patricia Esteve González ()

Working Papers from Universitat Rovira i Virgili, Department of Economics

Abstract: This paper analyzes repeated procurement of services as a four-stage game divided into two periods. In each period there is (1) a contest stage à la Tullock in which the principal selects an agent and (2) a service stage in which the selected agent provides a service. Since this service effort is non-verifiable, the principal faces a moral hazard problem at the service stages. This work considers how the principal should design the period-two contest to mitigate the moral hazard problem in the period-one service stage and to maximize total service and contest efforts. It is shown that the principal must take account of the agent's past service effort in the period-two contest success function. The results indicate that the optimal way to introduce this `bias' is to choose a certain degree of complementarity between past service and current contest efforts. This result shows that contests with `additive bias' (`multiplicative bias') are optimal in incentive problems when effort cost is low (high). Furthermore, it is shown that the severity of the moral hazard problem increases with the cost of service effort (compared to the cost of contest effort) and the number of agents. Finally, the results are extended to more general contest success functions. JEL classification: C72; D82 Key words: Biased contests; Moral Hazard; Repeated Game; Incentives.

Keywords: Jocs no-cooperatius (Matemàtica); 33 - Economia (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cta, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/2072/237593

Related works:
Journal Article: Moral hazard in repeated procurement of services (2016) Downloads
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:urv:wpaper:2072/237593

Access Statistics for this paper

More papers in Working Papers from Universitat Rovira i Virgili, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Ariadna Casals ().

 
Page updated 2021-04-12
Handle: RePEc:urv:wpaper:2072/237593