scholarly journals Contracting with Heterogeneous Externalities

2012 ◽  
Vol 4 (2) ◽  
pp. 50-76 ◽  
Author(s):  
Shai Bernstein ◽  
Eyal Winter
Keyword(s):  
Optimal Contracts ◽  
Simple Measure ◽  
Optimal Contracting ◽  
Optimal Ranking

We model situations in which a principal offers contracts to a group of agents to participate in a project. Agents' benefits from participation depend on the identity of other participating agents. We assume heterogeneous externalities and characterize the optimal contracting scheme. We show that the optimal contracts' payoff relies on a ranking, which arise from a tournament among the agents. The optimal ranking cannot be achieved by a simple measure of popularity. Using the structure of the optimal contracts, we derive results on the principal's revenue extraction and the role of the level of externalities' asymmetry. (JEL D62, D82, D86)

Optimal Contracting Model in a Social Environment and Trust-Related Psychological Costs

2013 ◽  
Vol 13 (1) ◽  
pp. 271-284 ◽  
Author(s):  
Suren Basov ◽  
M. Ishaq Bhatti
Keyword(s):  
Social Norms ◽  
Social Environment ◽  
Point Of View ◽  
The Other ◽  
Trade Off ◽  
Optimal Contracting ◽  
The Social ◽  
The One ◽  
Contracting Model

AbstractMost research in contract theory concentrated on the role of incentives in shaping individual behavior. Recent research suggests that social norms also play an important role. From a point of view of a mechanism designer (a principal, a government, and a bank), responsiveness of an agent to the social norms is both a blessing and a curse. On the one hand, it provides the designer with extra instruments, while on the other it puts restrictions on how these new and the more conventional instruments can be used. The main objective of this paper is to investigate this trade-off and study how it shapes different contracts observed in the real world. We consider a model in which agent’s cost of cheating is triggered by the principal’s show of trust. We call such behavior a norm of honesty and trust and show that it drives incentives to be either low powerful or high powerful, eliminating contracts with medium powerful incentives.

scholarly journals Wasteful Sanctions, Underperformance, and Endogenous Supervision

2014 ◽  
Vol 6 (4) ◽  
pp. 326-361 ◽  
Author(s):  
David A. Miller ◽  
Kareen Rozen
Keyword(s):  
Individual Performance ◽  
Optimal Contracts ◽  
Two Agents ◽  
Optimal Contracting ◽  
Level Monitoring ◽  
Task Level

We study optimal contracting in team settings where agents have many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write individual performance into formal contracts. Incentives are provided informally, using wasteful sanctions like guilt and shame, or slowed promotion. These features give rise to optimal contracts with underperformance, forgiving sanctioning schemes, and endogenous supervision structures. Agents optimally take on more assigned tasks than they intend to complete, leading to the concentration of supervisory responsibility in the hands of one or two agents. (JEL D82, D86, J41, M12, M54)

Optimal Contracts for Health Services in the Presence of Waiting Times and Asymmetric Information

2007 ◽  
Vol 7 (1) ◽  
Author(s):  
Luigi Siciliani
Keyword(s):  
Asymmetric Information ◽  
Health Services ◽  
Private Information ◽  
Waiting Times ◽  
Excess Demand ◽  
Optimal Contracts ◽  
Optimal Contracting ◽  
Potential Demand ◽  
Pooling Equilibrium ◽  
Separating Equilibrium

Abstract This study presents a model of optimal contracting for health services in the presence of excess demand and waiting times. We assume that: i) hospitals differ in their demand for treatment; ii) potential demand is private information of the provider; iii) specialists can dump patients; iv) activity and waiting times are contractible. A separating equilibrium exists when it is optimal for the purchaser to contract more activity and longer waiting times to those hospitals with higher demand. Hospitals with low demand gain informational rents. A pooling equilibrium may also occur.

scholarly journals Fetal Cerebral Ventriculomegaly: Sonographic Diagnostic Workup

2008 ◽  
Vol 2 (3) ◽  
pp. 100-111
Author(s):  
Vincenzo Pinto ◽  
Cristina A Rossi
Keyword(s):  
Screening Method ◽  
Diagnostic Workup ◽  
Ventricular Dilatation ◽  
Cerebral Ventricles ◽  
Crucial Point ◽  
Simple Measure ◽  
Brain Anomalies ◽  
Sonographic Sign ◽  
Associated Abnormalities

Abstract Dilatation of the fetal cerebral ventricles (ventriculomegaly) is a generic sonographic sign, which is common to several pathological entities carrying different prognosis. Ventriculomegaly is easily recognized by ultrasound by measuring the atrial width. This simple measure allows the recognition of even mild forms of ventricular dilatation and is used as a screening method for ventriculomegaly. However, although the diagnosis of ventriculomegaly is easy, the prenatal identification of the cause of ventricular dilatation is a more difficult task. The recognition of associated brain anomalies is a crucial point. The research of the cause of ventriculomegaly is clinically useful, since the prognosis mainly depends on the etiology and on the presence of associated abnormalities. In this article the role of prenatal sonography in recognizing the cause of the ventriculomegaly is reviewed.

scholarly journals Incentivising innovation in the construction sector: the role of consulting contracts

2019 ◽  
Vol 19 (2) ◽  
Author(s):  
Jonas Anund Vogel ◽  
Hans Lind ◽  
Cyril Holm
Keyword(s):  
Exploratory Study ◽  
General Applicability ◽  
Standard Type ◽  
Optimal Contracts ◽  
Standard Contract ◽  
Engineering Consulting ◽  
Incentive Structures ◽  
Contractual Structures

The issue of whether contracts promote innovation and sustainability is an important but overlooked aspect for achieving energy and environmental targets, as well as for creating smart and sustainable cities. In this article, based on the principle/agent problem and Holmström and Milgrom’s work on optimal contracts it is argued that the current general conditions of architectural and engineering consulting agreements in Sweden (ABK 09)—a standard type of contract often used in developer/consultant relations—may not incentivize choices that support the long-term goals of society. Furthermore, although this exploratory study specifically analyses a Swedish standard contract, the question of how contractual incentive structures can optimize real-world performance is a general one, and thus the article’s findings have general applicability. This exploratory study also points to further research into how contractual structures impact climate-neutral buildings. In this way, Swedish consultants who use ABK 09 are incentivized to include low-risk, well-proven, and widely used technologies in order to minimize risks for themselves. This study contributes to resolving this dilemma by suggesting how ABK 09 could be restructured to change the balance between incentives and risk and incentivize innovation and sustainability. As mentioned above, the current study operates at a theoretical level. It discusses six possible changes that would better align the contract with the societal goals of innovation and sustainability.

The Role of Stock Liquidity in Executive Compensation

2011 ◽  
Vol 87 (2) ◽  
pp. 537-563 ◽  
Author(s):  
Sudarshan Jayaraman ◽  
Todd T. Milbourn
Keyword(s):  
Executive Compensation ◽  
Least Squares ◽  
Stock Prices ◽  
Pay For Performance ◽  
Data Availability ◽  
Ongoing Debate ◽  
Stock Liquidity ◽  
Optimal Contracting ◽  
Increasing Trend

ABSTRACT We explore the role of stock liquidity in influencing the composition of CEO annual pay and the sensitivity of managerial wealth to stock prices. We find that as stock liquidity goes up, the proportion of equity-based compensation in total compensation increases while the proportion of cash-based compensation declines. Further, the CEO's pay-for-performance sensitivity with respect to stock prices is increasing in the liquidity of the stock. Our main findings are supported by additional tests based on shocks to stock liquidity and two-stage least squares specifications that mitigate endogeneity concerns. Our results are consistent with optimal contracting theories and contribute to the ongoing debate about the increasing trend of both equity-based over cash-based compensation and the sensitivity of total CEO wealth to stock prices rather than earnings. Data Availability: Data used for this study are derived from publicly available sources.

Optimal Collateralized Contracts

2020 ◽  
Vol 12 (4) ◽  
pp. 45-74
Author(s):  
Dan Cao ◽  
Roger Lagunoff
Keyword(s):  
Private Information ◽  
Optimal Contract ◽  
Optimal Contracts ◽  
Net Worth ◽  
Future Earnings ◽  
Endogenous Default ◽  
Initial Wealth ◽  
Credit Contracts ◽  
Collateralized Contracts

We examine the role of collateral in a dynamic model of optimal credit contracts in which a borrower values both housing and nonhousing consumption. The borrower’s private information about his income is the only friction. An optimal contract is collateralized when in some state, some portion of the borrower’s net worth is forfeited to the lender. We show that optimal contracts are always collateralized. The total value of forfeited assets is decreasing in income, highlighting the role of collateral as a deterrent to manipulation. Some assets—those that generate consumable services—will necessarily be collateralized, while others may not be. Endogenous default arises when the borrower’s initial wealth is low, as with subprime borrowers, and/or his future earnings are highly variable. (JEL D82, D86, G21, G51)

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