Combating principle-agent relationship problems: use of the truth revealing incentive mechanism
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Authors
Lewis, Victor Scott
Pupich, Daniel William
Subjects
Principal-agent relationships
information asymmetry
moral hazard
incentives
truth-revealing
incentive mechanism
information asymmetry
moral hazard
incentives
truth-revealing
incentive mechanism
Advisors
Gates, William R.
Yoder, E. Cory
Coughlan, Peter J.
Date of Issue
2007-12
Date
December 2007
Publisher
Monterey, California. Naval Postgraduate School
Language
Abstract
The purpose of this MBA professional report is to introduce the Truth Revealing Incentive Mechanism (TRIM) as a tool to help the government obtain more accurate cost estimates and control program costs. The TRIM is an economic mechanism based on principal-agent relationships that uses incentives to align contractors' interests with those of the Government. The TRIM combats principal-agent problems by extracting a contractor's true estimated costs. The TRIM is structured so that revealing the true estimated cost offers the contractor the highest potential fee. This report describes the principal-agent theory, identifies principal-agent problems in the current DoD contracting environment, discusses how the TRIM addresses these problems more effectively than traditional cost-reimbursement contracts, and explains how and where the TRIM can be applied. This report also includes an electronic version of the TRIM in Microsoft Excel format, as well as a practitioner's guide to help contracting officers use the TRIM.
Type
Description
MBA Professional Report
Series/Report No
Department
Graduate School of Business & Public Policy (GSBPP)
Organization
Identifiers
NPS Report Number
Sponsors
Funder
Format
xiv, 71 p. : ill.
28 cm.
28 cm.
Citation
Distribution Statement
Approved for public release; distribution is unlimited.