Contingent payments in selection contests

The early literature on research contests stressed the advantages of a fixed prize in inspiring R&D effort. More recently the focus has moved towards endogenizing the rewards to research activity in these tournament settings, since this can induce extra effort or enhance the surplus of the buyer. We focus on a research contest as a means of selecting a partner for an R&D enterprise, in an informational setting in which the established providers of R&D services know more about each others’ relative capabilities than does the buyer/sponsor. An alternative use of our model is in choosing between prospective patentees where the Patent Trading Office has less information on the patents than the competitors. This asymmetry creates a source of inefficiency if a rank order contest is used as a selection device; we show how the contest can be modified to improve selection efficiency, while maintaining its simplicity (as only ordinal information is required). The modification that we suggest involves endogenizing the prizes that are awarded contingent upon whether a contestant wins or loses the contest. Furthermore, the payment system and the selection mechanism are detail-free. This paper is part of the project “The Knowledge-Based Society” sponsored by the Research Council of Norway (project 172603/V10).     

Robust portfolio choice with stochastic interest rates

We determine the optimal investment strategy for an ambiguity-averse investor in a setting with stochastic interest rates. The investor has access to stocks, bonds, and a bank account and he is ambiguous about the expected rate of return of both bonds and stocks. The investor can have different levels of ambiguity aversion about the two types of risky assets. We find that it is more important to take model uncertainty about the stock dynamics than model uncertainty about the bond dynamics into account. Furthermore, the investor’s ambiguity increases his hedging demand. Consequently, the bond/stock ratio increases with his ambiguity and implies less extreme positions in the bank account. Altogether, our model yields portfolio allocations which are more in line with what is implementable in practice. Finally, we demonstrate that neglecting model uncertainty implies significant losses for the investor.     

Efficient Contests

In their seminal contribution, Lazear and Rosen (1981) show that wages based upon rank induce the same efficient effort as incentive‐based reward schemes. They also show that this equivalence result is not robust toward heterogeneity in worker ability, as long as ability is private information because it is not possible to structure contests to simultaneously satisfy self‐selection constraints and first‐best incentives. This paper demonstrates that efficiency can be achieved by a simple modification of the prize scheme in a mixed (heterogenous) contest where contestants learn their type after entry. If contestants know their type before entering the contest, rent extraction becomes an issue. Implications for optimal contest design are also explored. Finally, the relationship between effort maximizing contests and profit maximizing contests are discussed.     

Capital Structure and Assets: Effects of an Implicit Collateral

This paper analyses a firm's capital structure choice when assets have outside value. Valuable assets implicitly provide a collateral and increase tax shield exploitation. The key feature in this paper is asset value uncertainty, implying that it is unknown ex ante whether the equity holders ex post optimally sell the assets or re‐optimise the capital structure. Ex ante, more uncertain asset value decreases leverage, but not firm value, and selling the assets becomes less likely. Firms should tend to invest in assets whose value is less correlated to changes in earnings and, in addition, asset sales are less likely when this correlation is low.     

Impacts of different weed cutting practices on macrophyte species diversity and composition in a Danish stream

Various effects of stream management on biotic communities have been suggested on the basis of observations and investigations in regularly managed streams throughout Europe, but only very sparse information is available about if and how stream management can be combined with maintaining a natural and diverse stream flora. Our study was carried out to investigate how weed cutting practice and frequency can affect macrophyte communities to provide knowledge for future decisions regarding management in streams. We chose an experimental approach and applied four different weed cutting practices (cutting full width, central channel, diagonal channels and no cutting) and frequencies within one stream reach for four years. We found only very limited changes over the four years in overall macrophyte diversity parameters following different management practices and there were no changes in macrophyte diversity parameters either as a function of the weed cutting frequency or method applied. In contrast we found directional changes in macrophyte composition following frequent cuttings of either the whole stream channel or a less comprehensive cutting of only one central channel for four years. In both cases the macrophyte communities changed towards a more Ranunculus dominated community while Potamogeton natans became less important in the community. This change seemed to reflect a higher tolerance of Ranunculus towards disturbance. On the basis of these results, we recommend that the management frequency in streams is limited and, if several cuttings are needed to prevent bank over‐flow, cutting in several narrow channels is preferable to cutting in one central channel as directional changes in plant communities are avoided. Copyright © 2003 John Wiley & Sons, Ltd.     

Project management models as value creators

Based on findings from five case studies, we discuss benefits obtained by using a common project management model. The case studies are part of an international research project aimed at determining the value of project management. All five companies applied a customized project management model. The five models are presented, and their characteristics, similarities, and differences are discussed. Based on interviews and comparisons with literature, the values obtained are identified. The values relate to efficiency, legitimacy, power and control, and stakeholder satisfaction. Further, the article points to necessary preconditions (both technical and human factors) in order to harvest the values.     

Value creation by building an intraorganizational common frame of reference concerning project management

In this article, we suggest that organizations should not focus on selecting between various project management approaches, tools, or behaviors. Instead, we claim that the real benefit from project management implementations comes from the mere creation of a common frame of reference. Based on four case studies, we identify elements that enhance such a common frame of reference: (1) a common project management model, (2) common project management training, (3) common project management examinations/certifications, and (4) activities for knowledge sharing. Values created, especially when the application of the elements was mandatory, were better communication, better customer satisfaction, and easier knowledge sharing.     

Contest success functions: an extension

Summary. This note extends the axiomatic characterization of the power success function in fair contests by Skaperdas (1996) to an unfair contest. We show that the results previously obtained are straightforward to generalize; the success function is uniquely characterized by Luces Choice Axiom (implying independence of irrelevant alternatives) and homogeneity of degree zero.Received: July 1, 1996; revised version: October 30, 1996This revised version was published online in February 2005 with corrections to the cover date.