Abstract
ABSTRACT Like most business-to-business relationships, the interaction between an advertising agency and a client includes both common and conflicting interests. In this paper, we argue that the inherent nature of the advertising agency-client relationship creates an environment where double moral hazard prevails. Historic and existing contractual arrangements only imperfectly reflect the complexity of the connection between client and agency. This paper provides: (1) an outline of current advertising agency-advertiser contractual arrangements; (2) a model of why double moral hazard is an inherent problem in the relationship between agency and client; and, (3) some normative prescriptions on how this problem can be better resolved. We also discuss how the findings in this paper relate to other types of business-to-business relationships.
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