Moral hazard severity influences contract design and project implementation frequency.
The article explores how the severity of moral hazard affects the design of contracts in situations where one party needs to be compensated for both effort and honesty. The researchers found that simply having informative criteria is not enough to determine the optimal contract design. The level of control issues between the parties also plays a crucial role. Additionally, the severity of the moral hazard problem influences whether it is beneficial for one party to have the other implement a project more frequently than what is considered ideal.