Impact of documentary requirements of state subsidy grants on moral hazard

Abstract

Lowering moral hazard is possible by proper incentives, therefore we examine the elements of the documentary request of the contract and the application of the state aid process. We conclude that the aim using administrative constraints is rather detecting fraud than fighting moral hazard issues. If the documentary requirement would aim treating moral hazard, it would shrink the number of companies eligible for tendering. Due to the second effect of documentary requirements lowering moral hazard is only possible if adequate quality measurers can be defined in form of an incentive for the tendering process and are rigorously controlled in the standstill phase of the development projects.