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Excerpt
Moral Hazard, Incentive Contracts and Risk: Evidence from Procurement. Gregory Lewis, December 19, 2013, Paper. "Deadlines and late penalties are widely used to incentivize effort. Tighter deadlines and higher penalties induce higher effort, but increase the agent's risk. We model how these contract terms affect the work rate and time-to-completion in a procurement setting, characterizing the efficient contract design. Using new micro-level data on Minnesota highway construction contracts that includes day-by-day information on work plans, hours worked and delays, we find evidence of ex-post moral hazard..." Link verified August 21, 2014