Inside the Black Box of the Islamic financial decision: Designing a Paying for Performance contracts with Agency Problems, Incentives and asymmetry of information

Elmelki Anas; Ben Salah Saidi Hejra

Inside the Black Box of the Islamic financial decision: Designing a Paying for Performance contracts with Agency Problems, Incentives and asymmetry of information

Elmelki Anas * § Dr in Finance Assistant Professor in Gafsa University and Dean of higher institute of Arts and Crafts Gafsa University Tunisia

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Ben Salah Saidi Hejra

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§ Gafsa University Tunisia

Inside the Black Box of the Islamic financial decision: Designing a Paying for Performance contracts with Agency Problems, Incentives and asymmetry of information

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Abstract

From a theoretical point of view in the Islamic financial framework, trust is supposed to provide the economic glue that enables social financial cohesion and be the cornerstone of all transactions that need to be fair and equitable. The two parties involved in the contractual agreement must act with good intention in order to avoid exploitation in the exchange transaction and improve their mutual welfare. In fact, the contractor loves to his partner that which he loves for himself. Unfortunately, in practice this situation is not always true, because Islamic finance isn’t merely reserved to muslims and also among muslims there could be who isn’t behaving in accordance with the Islamic teaching all the time, and have different interests. This situation can get worse, especially in PLS contracting with risk sharing, when there’s a presence of asymmetry of information and non observability, which makes pareto-optimal risk sharing prevented, due to the lack of proper incentives and high monitoring costs not allowing suitable decisions taking.

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No external funding was declared for this work.

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The authors declare no conflict of interest.

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How to Cite This Article

Elmelki Anas, Ben Hejra. 2020. "Inside the Black Box of the Islamic financial decision: Designing a Paying for Performance contracts with Agency Problems, Incentives and asymmetry of information". Global Journal of Management and Business Research, Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 20 (GJMBR Volume 20 Issue C4).

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GJMBR Volume 20 Issue C4

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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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GJMBR-C Classification JEL Code: B26

Submission ReceivedDecember 16, 2019
Peer Review Double Blind
Handling Editor
Accepted January 1, 2020
Published January 15, 2020

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v1.2

Issue date

September 22, 2020

Language

English

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