Information systems outsourcing projects as a double moral hazard problem

► Extends the existing literature on outsourcing of IT systems. ► The game-theoretic approach embeds the moral hazard of both the vendor and the company. ► The optimal payment to the outsourcing vendor is characterized. ► Equilibrium effort and quality in the second-best solution is lower than in the first-best one. ► The study provides guidance on outsourcing IT systems vs. keeping it in-house.