Incentive Contracts in Virtual Enterprise under Information Asymmetry

In view of the virtual enterprises' project organization forms and considering the principal agent relationship between the owner and the partner, a key problem is studied that how the owner can screen the true information of the partner's capability type and can provide an effective incentive to make them work harder, when the partners' capability and service efforts are both of their private information. To solve the above problem, a time-based contract design process is developed under adverse selection and moral hazard. The pooling and separating contract are derived respectively. The effectiveness of these two types of contracts as well as characterizations are analyzed. The results show that the separating contracts, which the owner provides to different types of partners under adverse selection and moral hazard, are consistent with the reality.