The design of incentive contracts for preventing moral hazard in the dynamic alliance

In the case of asymmetric information, there are some principal-agent problems between dominant enterprise and member enterprises in the dynamic alliance. In the context of bounded rationality, “indiscreet behaviors” of member enterprises bring on moral hazard for the union. According to contract theory, the principal-agent model was applied to devise two incentive contracts: pure incentive contract and mixed-incentive contract with incentive and supervision in order to avoid risks and maximize whole performance of the union. Through analysis and comparison of these two contracts, this research analyzed their respective characteristics, probed into the influence on different factors to the optimal beneficial effort level of the partner enterprises and the optimal integrated supervision intensity of the dominant enterprise, and deeply dissected the relation between the optimal incentive intensity and the optimal integrated supervision intensity with a view to providing an effective analytical tool for the solution of moral hazard in the dynamic alliance.