ABSTRACT:

Using a principal-agent framework, this article examines frictions inherent in the information system development process between the designer and the user of information systems. It models the process where the user hires the designer to develop a decision-facilitating information system. Potential frictions originate from the user's (1) active participation during the information system design phase and (2) use of the "finished" information system as a basis for decision making in the organization. It is this active participation by the user that distinguishes this analysis from the traditional principal-agent analysis.

The analysis indicates that, in some situations, the user's unobserved use of the information system may not create contracting friction so that the designer is willing to warranty the system's usefulness for decision-facilitating purposes. In other situations, however, the potential exists for the user's input to create contracting friction. When such frictions occur, the optimal information system with unobservable user input is of lesser quality than the optimal system with observable user input. This phenomenon is defined as the design dilemma. The article identifies situations related to the occurrence of the design dilemma and analyzes their impacts on the design of information systems.

Keywords: Information system models, Decision making, Principal-agent analysis, Information system design.