Understanding contractual provisions and existence of moral hazard in tractor industry

Abstract

With cases of channel stuffing becoming quite prevalent in various industries across geographies, there are inhibitions that it also exists in India’s automotive sector on the back of moral hazard arising out of principal agent problem. Moral Hazard, on the part of the managers and firms, though helps in achieving growth targets and maximizing their incentives in short term, but it ultimately leads to an inferior equilibrium for both dealers and firms in the longer run. This paper is an honest attempt in understanding whether any moral hazard exists on part of firm or employees in India’s automotive sector, and if yes, then how it is affecting the dealers in the industry.