Mechanism Design for R&D Outsourcing with Double-Sided Moral Hazard and Double-Sided Adverse Selection

2011 ◽  
Vol 204-210 ◽  
pp. 1569-1574
Author(s):  
Xu Ding ◽  
Wei Dong Meng ◽  
Bo Huang ◽  
Feng Ming Tao
Keyword(s):  
Moral Hazard ◽  
Mechanism Design ◽  
Adverse Selection ◽  
Private Information ◽  
Incentive Mechanism ◽  
Profit Sharing ◽  
Transfer Payment

It is studied that how to use profit sharing arrangement as an incentive mechanism to stimulate both parties of R&D outsourcing to reveal their private information and commit enough R&D resources or efforts. First, it is proved that the double-sided moral hazard in R&D outsourcing can not be totally prevented under traditional profit-sharing arrangement, namely, fixed, proportional or mixed profit-sharing arrangement. And a new mixed profit sharing arrangement is proposed, which is composed of a fixed transfer payment and allocation proportion, and proved to be able to prevent the double-sided moral hazard, and motivate both parties to reveal their private information and commit enough efforts.

scholarly journals When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information

2019 ◽  
Vol 56 (5) ◽  
pp. 749-766 ◽  
Author(s):  
Minkyung Kim ◽  
K. Sudhir ◽  
Kosuke Uetake ◽  
Rodrigo Canales
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Customer Relationship Management ◽  
Private Information ◽  
Information Acquisition ◽  
Relationship Management ◽  
Selection Effect ◽  
Sales Performance ◽  
Customer Relationships ◽  
Customer Relationship

At many firms, incentivized salespeople with private information about customers are responsible for customer relationship management. Although incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. The authors investigate the sales performance–moral hazard trade-off in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, the authors detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard, leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative effects of acquiring low-quality customers on future payoffs. Critically, without the moderating effect of maintenance incentives, the adverse selection effect of acquisition incentives overwhelms the sales-enhancing effects, clarifying the importance of multidimensional incentives for customer relationship management. Reducing private information (through job transfers) hurts customer maintenance but has greater impact on productivity by moderating adverse selection at acquisition. This article also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identification strategy that exploits the time-varying effects of salesperson incentives.

scholarly journals PATRON CLIENT: KONTRAK SEMI MUDHARABAH DALAM TEORI KEAGENAN DI PERIKANAN LAUT

El Dinar ◽  
2018 ◽  
Vol 5 (1) ◽  
pp. 1
Author(s):  
Vika Annisa Qurrata
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Profit Sharing ◽  
Blue Water ◽  
Marine Fisheries ◽  
Operational Costs ◽  
Depth Interviews

This study aims to find out how the skipper (as principal) interact with pandega fishermen (as agents) in creating mudaraba-style contracts in marine fisheries (patron-client). With in-depth interviews, there are two important findings: in general juragandi Blue Water Waters especially in the payang fishermen and the lifeboats impose exploitation fees or operational costs to the pandega fishermen in a shared way. Then there is a bit of aberration in the profit-sharing system, but this institution seems to exist and be a deal that never openly conflicts. Based on the findings and some literature, mudaraba contracts can be a purely alternative financing if it is more just and beneficial to both parties ie the master / shahibul maal as principal and pandega / mudharib as agent. To minimize the possibility of moral hazard and adverse selection on the mudaraba contract, it is advisable to monitor each return of the vessel for the sale of fish and the skipper can place one of the trustees other than the pandega fisherman.

A Simple Model of Corporate Fiduciary Duties: With an Application to Corporate Compliance

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
William C. Bunting
Keyword(s):  
Simple Model ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Private Information ◽  
Third Party ◽  
Duty Of Care ◽  
Court System ◽  
Corporate Compliance ◽  
Corporate Loyalty ◽  
Audit Technology

Abstract This article models the duty of care as a response to moral hazard where the principal seeks to induce effort that is costly to the agent and unobservable by the principal. The duty of loyalty, by contrast, is modeled as a response to adverse selection where the principal seeks truthful disclosure of private information held by the agent. This model of corporate loyalty differs importantly with standard adverse selection models, however, in that the principal cannot use available contracting variables as a screening mechanism to ensure honest disclosure and must rely upon the use of an external third-party audit technology, such as the court system. This article extends the model to the issue of corporate compliance and argues that the optimal judicial approach would define the duty to monitor as a subset of due care – and not loyalty – but hold that the usual legal protections provided for due care violations no longer apply.

scholarly journals The Importance of Good Customer Ethics in Improving The Financing Portion of Mudharabah

2016 ◽  
Vol 4 (1) ◽  
pp. 015
Author(s):  
Khotibul Umam
Keyword(s):  
Asymmetric Information ◽  
Business Ethics ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Profit Sharing ◽  
Islamic Banking ◽  
Islamic Bank ◽  
Bank Financing

Mudharabah is a partnership contract (reputation agreement) in which one party (shahibul maal) will give his property to another party (mudharib) as productive business capital  with profit sharing between the owner of the funds/capital based on the agreed ratio in advance. In practice, the application of financing mudharabah is not easy to be implemented in Islamic banking because financing mudharabah will make the asymmetric information between the customer and Islamic banking. Mudharabah client have more information than Islamic banking about all of that business.  Asymmetric information sometimes can make the costumer do the moral hazard and adverse selection acts with the result that Islamic banking didn't take that risk and make the distribution of mudharabah financing portion becomes very small when compared to the total number of Islamic bank financing. Mudharabah Customers must have a good business ethics and always have advanced principle of honesty, trustworthy and transparent in managing shahibul maal funds in orther to they can minimize the risk of financing mudharabah and make Islamic banking be confident to grant the decision of financing mudharabah.

scholarly journals Aplikasi Pembiayaan di Bank Syari’ah

2020 ◽  
Vol 4 (2) ◽  
pp. 217-233
Author(s):  
Ahmad Dahlan
Keyword(s):  
Asymmetric Information ◽  
Human Resources ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Profit Sharing ◽  
Capitalist System ◽  
Information Problem ◽  
Sociological Aspect

The aplication of Syari’ah bank financial which is based on profit and loss sharing, known as margin profit sharing, seems facing many challenges. From the financing side, the obstacles are asymmetric information problem, side streaming, adverse selection, and moral hazard. The indirect obstacles are the sociological aspect, such as a domination of capitalist system in banking and the non optimum human resources.

Using Mudarabah for Micro-Enterprises of Refugees

2020 ◽  
pp. 593-621
Author(s):  
Omar Kachkar
Keyword(s):  
Best Practices ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Profit Sharing ◽  
Financial Inclusion ◽  
Support Program ◽  
Support Programs ◽  
Micro Enterprises

This chapter examines the prospects and challenges of using the Mudharabah (profit-sharing partnership) instrument to extend microfinancing to refugees in microenterprise support programs. According to the literature, many Muslim refugees voluntarily exclude themselves from microfinance programs due to the element of interest that is strictly prohibited in Islam. Mudarabah as a Shari'ah-compliant mode of finance represents one potential instrument that complies with the religious teachings of Muslim refugees and could assist in the financial inclusion of many of them. Despite the inherent risks of Mudarabah such as moral hazard and adverse selection, some successful stories are remarkably encouraging. This chapter is proposing a model for a microenterprise support program based on Mudarabah. The chapter concludes that Mudarabah is a viable mode of finance provided that best practices in implementing Mudarabah as well as microfinance programmes are well adopted and observed.

scholarly journals An Uncertain Wage Contract Model with Adverse Selection and Moral Hazard

2014 ◽  
Vol 2014 ◽  
pp. 1-9 ◽  
Author(s):  
Xiulan Wang ◽  
Yanfei Lan ◽  
Jiao Wang
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Private Information ◽  
Equivalent Form ◽  
Optimal Solution ◽  
Uncertain Variable ◽  
Wage Increase ◽  
Effort Level ◽  
Proposed Model ◽  
Wage Contract

This paper considers a wage contract design problem faced by an employer (he) who employs an employee (she) to work for him in labor market. Since the employee's ability that affects the productivity is her private information and cannot be observed by the employer, it can be characterized as an uncertain variable. Moreover, the employee's effort is unobservable to the employer, and the employee can select her effort level to maximize her utility. Thus, an uncertain wage contract model with adverse selection and moral hazard is established to maximize the employer's expected profit. And the model analysis mainly focuses on the equivalent form of the proposed wage contract model and the optimal solution to this form. The optimal solution indicates that both the employee's effort level and the wage increase with the employee's ability. Lastly, a numerical example is given to illustrate the effectiveness of the proposed model.

scholarly journals Regulating a Firm under Adverse Selection and Moral Hazard in Uncertain Environment

2014 ◽  
Vol 2014 ◽  
pp. 1-12 ◽  
Author(s):  
Jing Feng ◽  
Yanfei Lan ◽  
Ruiqing Zhao
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Private Information ◽  
Regulatory Policy ◽  
Consumer Surplus ◽  
Market Demand ◽  
Effort Level ◽  
Total Surplus ◽  
Market Capacity ◽  
The Difference

This paper investigates a problem of how to regulate a firm which has private information about the market capacity, leading to adverse selection, and which can increase the market demand by exerting costly effort, resulting in moral hazard. In such a setting, the regulator offers a regulatory policy to the firm with the objective of maximizing a weighted sum of the consumer surplus and the firm’s profit (i.e., the social total surplus). We firstly find that the regulator will set the firm’s effort level as zero under observable effort regardless of the market capacity being full or private information; that is, the effort has no impact on the optimal regulatory policy. Interestingly, we also show that, it is necessary for regulator to consider the difference between the effort’s impact on the demand and the price’s impact on the demand, which may generate different distortion effects about the regulatory policy.

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