Supervision and Incentive Mechanism Design in Technological Innovation of Public Goods

The commissioning of private suppliers to conduct technological research and development (R&D) has become a central instrument for the public sector to promote technological innovation in public goods. However, information asymmetry and goal divergence between public principals and suppliers create moral hazard problems that can undermine innovation efficiency. Purely output-based incentive contracts are often insufficient to curb suppliers’ opportunistic behavior, especially when R&D outputs are uncertain and difficult to measure ex ante. This raises the need to complement incentive contracts with supervision mechanisms and to jointly optimize the structure of incentives and monitoring efforts. Building on principal–agent theory, this paper develops an incentive model that explicitly incorporates both supervision intensity and regulatory difficulty and analyzes how these factors shape suppliers’ R&D efforts and the public sector’s benefit levels. The results show, first, that appropriately designed supervision can increase suppliers’ willingness to invest in R&D and thereby help to strengthen the effectiveness of incentives. Second, incentive contracts need to be adjusted in line with supervision intensity: by reallocating rewards based on both observed outputs and supervision results, the public principal can induce higher effort levels. Third, as regulatory difficulty rises, the marginal effectiveness of supervision changes; under high regulatory difficulty, excessive supervision may even weaken incentive effects, implying that supervision intensity should be kept within a moderate range. Fourth, there exists an interior level of supervision intensity that balances monitoring costs against incentive benefits and thus maximizes the principal’s overall expected payoff. Viewed from a system engineering perspective, commissioned public goods R&D constitutes a complex multi-actor system subject to external disturbances in which incentive and supervision mechanisms operate as joint control structures regulating system behavior. The findings provide analytical support and policy-relevant insights for designing and calibrating supervision and incentive mechanisms in technological innovation projects for public goods.