Resum:
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This paper gives a new explanation for the phenomena of subcontracting. A model
in which a principal contracts two agents who work in a sequence on a project, have soft
information and can collude is considered. Side-contracts between agents can be signed
at any stage of the game. Due to limited liability and moral hazard agents obtain a rent.
The principal’s problem is to find the preferable contracting structure. It is shown that in
this setting a decentralized contracting structure can be superior to a centralized structure
for the principal. The paper derives the conditions under which this holds.
Journal of Economic Literature Classification Numbers: D23, D82, L14, L22.
Keywords: Contract delegation, Collusion, Interim side-contracting, Moral hazard. |