Tradeoff between Equity and Effciency in Revenue Sharing Contracts

• Authors: Bogumił Kamiński , Maciej Łatek
• Languages of publication: EN

Abstracts

EN

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

EN

Moral Hazard; Team Production; Cost Inflation; Project Management

• Publisher: Polska Akademia Nauk Oddział w Łodzi
• Journal: Central European Journal of Economic Modelling and Econometrics
• Year: 2010
• Volume: 2
• Issue: 1
• Pages: 1-16

Dates

received

2010-02-25

accepted

2010-10-05

Contributors

author

Bogumił Kamiński

• Warsaw School of Economics

author

Maciej Łatek

• George Mason University