Principal-agent maintenance problem

This article studies a maintenance problem that is applicable for multidivison organizations on lessee-lessor relationships. It is assumed that the parties sign a contract for a fixed time period. Within the period, the lessor is allowed to use the equipment supplied by the lessee. The availability of the equipment that may suffer from breakdown depends on the preventive maintenance policy adopted by the lessor. The properties of this policy as well as other features of the problem are analyzed using a one-period model that takes into account the economic value of the contract as perceived by the lessor and the lessee. The optimal contracting arrangements are analyzed from the perspective of efficient risk sharing and incentive provisions.