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Study of Optimal Contract Under Asymmetric Information

In: The 19th International Conference on Industrial Engineering and Engineering Management

Author

Listed:
  • Ping Li

    (Luoyang Institute of Science and Technology)

  • Hong-zhi He

    (Luoyang Institute of Science and Technology)

Abstract

The opportunism and information asymmetry between the two parties of a contract alteration give rise to the phenomenon of hold up and underinvestment, as well as the moral hazard problem of hiding information from the other party. This article built up the optimal contract model under asymmetric information by using the principle-agent theory and studied the above problem. The article proved that, under the conditions that the contractor hides information, the optimal contract would decrease the special purposed investment levels, prolong the time limit of the engineering project, and decrease the owners’ utility.

Suggested Citation

  • Ping Li & Hong-zhi He, 2013. "Study of Optimal Contract Under Asymmetric Information," Springer Books, in: Ershi Qi & Jiang Shen & Runliang Dou (ed.), The 19th International Conference on Industrial Engineering and Engineering Management, edition 127, chapter 0, pages 373-382, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-37270-4_36
    DOI: 10.1007/978-3-642-37270-4_36
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    Cited by:

    1. Zeng, Nengmin & Wu, Guangdong & Zeng, Dongling & Liu, Ang & Ren, Tinghai & Liu, Bingsheng, 2023. "Optimal mechanism for project splitting with time cost and asymmetric information," International Journal of Production Economics, Elsevier, vol. 264(C).
    2. Gianna Lotito & Matteo Migheli & Guido Ortona, 2020. "Transparency, asymmetric information and cooperation," European Journal of Law and Economics, Springer, vol. 50(2), pages 267-294, October.

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