Information Expropriation and Moral Hazard in Optimal Second-Source Auctions
Posted: 19 Feb 2014
Date Written: July 1, 1994
Government mandated technology transfers from the developer of a product to a second source offer a potential gain of reduced information rents and procurement costs. To provide appropriate incentives, technology must sometimes be transferred even when the second source is less efficient than the first. Additionally, when developer moral hazard exists with respect to investments in cost-reducing technology, the optimal auction will make the developer's success in the auction more sensitive to the developing firm's announced costs.
Keywords: Contract theory, Incentives
JEL Classification: C70, D82
Suggested Citation: Suggested Citation