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

Abstract:

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.

• Periodical: Advanced Materials Research (Volumes 204-210)
• Pages: 1569-1574
• DOI: https://doi.org/10.4028/www.scientific.net/AMR.204-210.1569
• Online since: February 2011
• Authors: Xu Ding, Wei Dong Meng, Bo Huang, Feng Ming Tao
• Keywords: Double-Sided Adverse Selection, Double-Sided Moral Hazard, Incentive Mechanism, Profit Sharing Arrangement, R&D Outsourcing

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