Contractual Incentives for Information Production and Market Failures in Pandemic COVID 19 Situation

Abstract

This article aims to investigate contractual incentives for information production and market failures during the Covid 19 pandemic. The research methodology carried out is qualitative research by conducting analysis sourced from library materials or also known as literature research. The results of this analysis show that Contractual Incentives can cause inefficiencies in information production, even worse than market failures. We also point out that failure to account for the cost of Contractual Incentives when prescribing collaboration can result in a much lower-than-expected rate of return. This is related to moral hazard in the context of agency theory because there is an asymmetry of information between the principal and the agent. Information asymmetry is an imbalance of information that occurs because there are parties who can obtain and utilize information for their benefit whereas other parties cannot obtain the same information. The way to overcome the problem of Contractual Incentives and market failures can be done correctly and correctly. First the solution is viewed from the perspective of pure agency theory. The solution includes designing Contractual Incentives to control moral hazard, recruiting managers and providing salaries that can maximize their utility, conducting direct supervision, conducting indirect supervision, giving managers a portion of the company's results, conflict control between managers and shareholders, management compensation contracts and conflict resolution. Both solutions are carried out when the costs associated with Contractual Incentives are considered, there are circumstances in which collaboration—even in an arrangement that maximizes social utility—is not an ideal approach to achieving the fulfillment of most social goals. Therefore, it should carefully consider Information Production and Market Failures additional factors before Contractual Incentives engage in collaborative efforts.