Surrogacy Contracting and Intermediation

Abstract

We develop a model of commercial gestational surrogacy in which a childless couple approaches an infertility clinic for selection of a prospective surrogate, and for monitoring her further during the period of gestation. If the agency’s effort is noncontractible, then it is found to put in suboptimal monitoring effort, and hence the chapter focuses on the intermediate agency’s moral hazard. The intermediate agency’s monitoring is positively related to the surrogate’s altruism, for surrogates with low outside option. For surrogates with higher outside option, the agency’s monitoring is independent of the surrogate’s altruism and is only dependent on the surrogate’s reservation utility.