Indescribability and its irrelevance for contractual incompleteness

The incomplete contracts literature often cites indescribable contingencies as a major obstacle to the creation of complete contracts. Using agents’ minimum foresight concerning possible future payoffs, Maskin and Tirole (Rev Econ Stud 66:83–114, 1999) show that indescribability does not matter for contractual incompleteness as long as there is symmetric information at both the contracting stage and the trading stage. This is called the irrelevance theorem. The following generalization of the irrelevance theorem is shown here: indescribability does not matter even in the presence of asymmetric information at the trading stage, as long as there is symmetric information at the contracting stage. This is an important clarification because Kunimoto (Econ Lett 99:367–370, 2008) shows that indescribability can matter if there is asymmetric information at both stages. It is thus argued that asymmetric information at the contracting stage is necessary for indescribability to be important in the rational agents contracting model.     

Relational Contracting in Partnerships

When performance is not verifiable, firms in a long-term relationship may rely on incentive contracts that are self-enforced or "relational." This paper studies the optimal design and performance of relational contracts in partnerships such as joint ventures or buyer-seller alliances. Optimal contracts look the same in each period as long as the relationship continues, but may require termination of the relationship after bad outcomes. Payments between the partners depend on their relative performance. In the special case of bilateral trade with specific investments, optimal relational contracting results in a price that varies with cost and demand conditions but is more stable than under spot market bargaining. Parallels are drawn with "Japanese style" subcontracting.     

Decision-making in organizations: when to delegate and whom to delegate

A production process involves a principal and two privately informed agents. Production requires coordinated decision making. It might be carried in a centralized organization or through delegated contracting in a hierarchical structure. We compare the performance of different organizational structures when renegotiation of initial contracts is possible. We show that delegated contracting always dominates centralization if the downstream contract between the agents is observable. Contracting (resp. control) should be delegated to the agent with the least (resp. most) important information. If downstream contracts are not observable, we obtain a tradeoff between centralization and delegation.     

Do interlocal contracts seek collaborative efficiency? An investigation of police service delivery in California cities

ABSTRACT

Do interlocal contracts for police service seek and achieve collaborative efficiency? This research builds upon recent discussions of collaborative efficiency, including the rationale for, and consequences of, efficiency-seeking reforms in the public sector. Evaluating the experience of cities in California between 2001 and 2010, the investigation shows some cities seek budget savings through interlocal contracts, but others turn to this mechanism due to various forms of ex-ante interdependence. Through analysis of the organizational interdependence associated with interlocal contracting, this case provides evidence that interlocal contracts for police service can yield cost savings, but collaborative efficiency is not guaranteed.     

On contracting for uncertain R&D

Using a two‐stage model, this paper studies auctions of research and development (R&D) contracts when the outcome of research is uncertain. The agent is contracted by the principal to invent a new product or a new process. The principal selects the most capable agent through an auction and writes an incentive contract with the winning agent to share risks. The main finding of the paper is that the generally superior incentive contracts might not be desirable under plausible conditions in R&D contracting. In particular, we find that the principal prefers a cost‐plus contract in cases of large R&D projects or rising innovation benefits, but would prefer a fixed‐price contract when the number of bidders increases. An alternate elasticity interpretation of results holds promise for empirical analysis. Public policy implications are finally discussed. Copyright © 1999 John Wiley & Sons, Ltd.     

Reputation, Product Quality, and Warranties

This paper studies the firm's choice between implicit and explicit contracts as alternative methods of assuring product quality. The relationship between these two contractual forms is studied using a dynamic model with imperfect monitoring and team moral hazard where both the firm and the consumer take unobservable actions that affect product performance. The firm chooses the contractual arrangement that maximizes expected profit. Identified are conditions on the primitive attributes of the transactions and on the firm's environment that can help explain why firms might decide to use explicit contracting, implicit contracting, or a combination of the two. I also show that there are conditions under which the introduction of reputation causes explicit contracts to be more uniform and less sensitive to the details of the transaction than implied by static models.     

The challenge of using standard contracts in public–private partnerships

A call for an increased use of standard contracts in public–private partnerships (PPPs) for infrastructure development is noticeable in practice. These contracts are expected to simplify and improve procurement by creating opportunities for learning, lower transaction costs, and better competition. This paper delineates standard contracts in PPP as a new venue for research and unfolds their potential impact. Here lies an important challenge since the benefits of standardization are not as straightforward as they look at first sight, particularly when taking into account the tension between the powerful, control-oriented role of contracting authorities and the need for contingent, informal contracting.     

Payer Competition and Cost Shifting in Health Care

This paper studies a model in which two payers contract with one hospital. True costs per patient are not a possible basis for payment, and contracts can only be written on the basis of allocated cost. Payers choose a contract that is fully prospective or fully based on cost allocation, or a payment scheme that would give some weight to each of these two. We characterize the payers'equilibrium contracts arid show how in equilibrium hospital input decisions are distorted by the payers' incentives to engage in cost shifting. Two cost-shifting incentives work in opposite directions, and equilibrium can be characterized by too little or too much care relative to the socially efficient level.     

Independent and dependent contracting: Meaning and implications

In the context of the changing nature of work and the continuing growth of contingent employment contracts, this article examines the consequences associated with various forms of individually-negotiated, fixed-term contracts. This article first draws a distinction between what can be labeled as independent contracting arrangements, where the workers are autonomous and mobile, and other situations where contractors are more “dependent” on their clients. This investigation then provides an overview of the consequences associated with the employment of “independent” and “dependent” contractors. Based on a review of the existing research literature, the article examines the prescribed and realized benefits of individual contracting from the perspectives of the organization, the permanent employees, and the contractors themselves. Finally, the article concludes with some suggestions for human resource management (HRM) practice as well as areas in need of future research attention.     

我国国际工程承包企业运营中的问题与对策研究

工程总承包模式已成为当今建筑市场承发包的主要模式。我国工程承包企业在国内外工程总承包市场取得了一定的成绩,但是相对于发达国家的工程承包企业还存在许多弱点和不足。对我国国际工程承包企业现存的问题进行了分析研究,并针对存在的问题提出了相应的对策。     

Different Problem,Same Solution: Contract‐Specialization in Venture Capital

Real‐world financial contracts vary greatly in the combinations of cash flow contingency terms and control rights used. Extant theoretical work explains such variation by arguing that each investor finely tailors contracts to mitigate investment‐specific incentive problems. We provide overwhelming evidence from 4,561 venture capital (VC) contracts that this tailoring is overstated: even though there is broad variation in contracting across VCs, each individual VC tends to specialize, recycling familiar terms. In fact, a VC typically restricts contracting choices to a small set of alternatives: 46% of the time, a VC uses the same exact cash flow contingencies as in one of her previous five contracts. We document specialization in both aggregated downside protection, and in each individual cash flow contingency term. Such specialization remains economically and statistically significant even after controlling for VC and company characteristics. We also find that VCs learn to use new contractual solutions from other VCs in her syndication network. Our findings challenge the traditional premise that each investor selects from the universe of combinations of terms to match an investment's unique contracting problem. Rather, the cumulative evidence indicates that contract‐specialization arises because investors better understand payoff consequences of familiar terms, and are reluctant to experiment with unknown combinations.     

Contract Law and the Governance of Inter‐Firm Technology Partnerships – An Analysis of Different Modes of Partnering and Their Contractual Implications*

abstract This paper studies some major legal implications of inter‐firm technology partnering through equity joint ventures, non‐equity partnerships, and licensing contracts. These different partnerships are placed within the classical and relational contracting perspectives, while also considering intellectual property rights issues. Samples of contracts of partnerships in bioscience, fine chemicals, biotechnology and biopharmaceuticals are analysed, in detail, with reference to the distribution of property rights, major contractual clauses, and measures for conflict resolution. Equity joint ventures and non‐equity partnerships are found to largely follow a relational contracting perspective, while licensing contracts are governed by a classical contracting perspective.     

Points mechanisms and rewards programs

I study points programs, such as frequent flyer and other rewards programs, as a revenue management tool. I develop a two‐period contracting model where a capacity‐constrained firm faces consumers who privately learn their valuations over time. The firm cannot commit to long‐term contracts, but it can commit to allocate any unsold capacity through a points program. This points scheme creates an endogenous and type‐dependent outside option for consumers, which generates novel incentives in the firm's pricing problem. It induces the firm to screen less ex interim, and to offer lower equilibrium prices, reversing the intuition of demand cannibalization.     

Long-term work contracts versus sequential spot markets: experimental evidence on firm-specific investment

The length of work contracts may be irrelevant for firm-specific investment if rational behavior generates endogenous job security. In an experiment, we implement such a situation and study actual investment behavior. In contrast to the game-theoretic prediction, we find reduced investment in case of short-term contracting compared to long-term contracting. This is due to nonequilibrium behavior that generates a substantial risk of unemployment if contracts are short-term. Since the effect of nonequilibrium behavior differs between institutions, the length of contract is in fact relevant for firm-specific investment.     

Just‐cause provisions,severance pay,and the efficiency wage hypothesis

A simple model of employment contracting is employed to examine the effectiveness of just‐cause provisions in alleviating employer opportunism in two types of efficiency wage contracts—standard contracts, in which wages exceed the worker's marginal contribution, and deferred wages, which are paid after a period of tenure in the firm. It is argued that just‐cause employment policies are necessary and sufficient to prevent employer opportunism when standard efficiency wages are utilized. However, just‐cause policies are not sufficient to deter employer opportunism when employment contracts are of the delayed‐payment type. In these contracts, other contractual provisions, such as severance provisions, are also necessary. Copyright © 2000 John Wiley & Sons, Ltd.     

Sector choices for public service delivery The transaction cost implications of executive turnover

The question of whether private firms should contract out for products and services or provide them internally (i.e. become more vertically integrated) has been a topic that has concerned scholars for many years. This article argues that the transaction costs in local contracting choices are linked to the characteristics of political systems that influence political and administrative uncertainty. Our analysis examines the transaction costs that result from executive turnover. Specifically, we are concerned with how uncertainty resulting from turnover in leadership positions in city government affects the ability of a municipality to negotiate contracts, make credible commitments to suppliers and faithfully uphold and enforce contracts once they are in force. We find that manager turnover reduces the likelihood of contracting with private sector providers. Mayor turnover has the opposite effect increasing contracting with both government and for-profit providers.     

Assessing technology portfolios for contract competition: An analytic hierarchy process approach

Firms engaged in high-technology government and commercial contracts allocate discretionary funds to R&D projects to enhance the quality of prototype design. We propose a method for targeting enhancements which appeal to clients while also providing technological advantage vis-a-vis other firms competing for the same contracts. R&D projects can be scored on their contribution to contract selection criteria and compared in the context of a technology portfolio, a matrix that reveals the relative merits of the engineering proposals and potential technology niches.

Knowledge on clients, competitors and priorities regarding selection criteria is often judgmental and fragmented within the firm. Meaningful translation of various experts' comparisons into a hierarchical, internally consistent scoring scheme is achieved with Saaty's analytic hierarchy process. Carefully specified technical benchmarks, used to scale quality and cost data, are also instrumental for soliciting judgmental knowledge. Implementation of the technology portfolio assessment is illustrated with a practical example drawn from defense contracting.     

试论建筑工程造价中的管理与控制

随着我国社会主义建设事业的劲猛发展,提高众多工程项目总承包及相关的施工管理水平,合理规范施工管理的行为,切实保证工程的质量和施工过程的安全,科学、合理的控制工程造价,建设工程项目管理已提上日程。与之相关连的建设工程项目施工的成本控制、建设工程项目的进度控制、建设工程项目的质量控制、建设工程的合同与合同管理已经成为项目管理的核心问题,需要摆在首位来严抓。     

Efficient venture capital financing combining debt and equity

I present a model of venture capital contracting in which contracts that involve a mixture of both debt and equity are efficient and dominate pure-equity and pure-debt financing. The optimal contract balances the venture capitalist's incentive to intervene in the project and the entrepreneur's desire for control. Received: 9 September 1997 / Accepted: 3 April 1998     

Individual contracting,collective bargaining and wages in Australia

We examine wages in Australia under federally registered individual contracts and collective agreements (CAs) using unpublished data from a national earnings survey. The distribution of earnings under registered individual contracts was more unequal than under CAs. Average and median earnings under registered individual contracts were lower than under CAs. There was little evidence that individual contracting raised wages through raising productivity. The link between contracting and pay appears contingent, varying between occupations, industries, and firm size bands and dependent upon employees' position in the labour market and employers' use of union avoidance strategies. This has implications for the interpretation of studies of union wage effects.