| Abstract
Text: |
This paper is concerned with
moral hazard, efficiency and the organization of strategic
alliances. We analyze two specific organizational forms, the
arm’s length contract and the joint venture, in various
settings. We enrich the usual space of resource inputs to
include both quality and quantity dimensions. If the only
dimension of moral hazard is the quantity of input contributed
(traditionally, effort), then the joint venture does, other
things equal, dominate. However, when quality is also an issue,
then the answer is not so obvious. In the single period case:
(i) efficiency is not, in general, attained under either form,
and (ii) relative efficiency depends in interesting ways on
the interaction between effort and quality. In the finite,
multi-period case, the joint venture can induce efficient
behavior. |
