Principal-agent model in agricultural based projects in the Republic of Armenia (the Problem statement)

The rural development projects in emerging countries are tight lines for developing the agriculture. They are considered important, as they provide the inputs for industrial development and increase export earnings, they contribute to food security as well as provide agricultural products for local markets. In the Republic of Armenia there are number of agricultural based projects that were implemented and are being implemented. Usually these projects are financed by international donors and are realised by locally selected institutions. We have adopted principal-agent model in the process of project implementation to show the possible information asymmetries that could be raised between international donors and implementers. The parties involved in the project implementation are the principal (i.e. Project donor), and agent (i.e. Project implementer). When donors are delegating the agents to complete the project there is a risk of information asymmetry. If the implementer behaves opportunistically, it could use it into its utility maximization. The outcome could be the decrease of project contribution allocated for beneficiaries. In this paper, we show the probable risks of parties’ relations. We propose too, some risk minimization strategies that we think will alter the information asymmetry. First, prior to project delegation there is strictly recommended to study the implementer experience and the path that he/she has completed. Second, during implementation process increase the monitoring of specific tasks that were proposed by project plan. The following suggestions are made for projects that are existent in Armenia; however, we think that they are applicable in use of other countries examples as well.