scholarly journals A Bargaining-Based Model of Security Design

2021 ◽  
Vol 13 (3) ◽  
pp. 443-473
Author(s):  
Matan Tsur
Keyword(s):  
Large Class ◽  
Bargaining Game ◽  
Optimal Contract ◽  
Security Design ◽  
Equilibrium Payoff ◽  
Multilateral Negotiations ◽  
Project Outcomes ◽  
Ex Post ◽  
Empirical Implications ◽  
A Share

This paper studies how security design affects project outcomes. Consider a firm that raises capital for multiple projects by offering investors a share of the revenues. The revenue of each project is determined ex post through bargaining with a buyer of the output. Thus, the choice of security affects the feasible payoffs of the bargaining game. We characterize the securities that achieve the firm’s maximal equilibrium payoff in bilateral and multilateral negotiations. In a large class of securities, the optimal contract is remarkably simple. The firm finances each project separately with defaultable debt. Welfare and empirical implications are discussed. (JEL C78, D21, D86, G12, G32)

Legal Environment and Contractual Choice

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Ho Cheung Cheng
Keyword(s):  
Optimal Contract ◽  
Legal Environment ◽  
Gains From Trade ◽  
Legal Systems ◽  
Ex Post ◽  
Ex Ante ◽  
Contractual Choice

Abstract This paper considers contractual choice under imperfect legal systems, in particular, contracts with different timing of payment. Ex-ante payment contracts are risky for the buyer, because the seller may shirk. Ex-post payment contracts are risky for the seller, as the buyer may default. Optimal contract is solved for any given legal environment. Exchanges with lower gains from trade tend to adopt ex-post payment contracts. The seller is a better proposer than the buyer in terms of the efficiency of the proposed contract. Surprisingly, offering ex-ante payment contracts is not strictly better for the seller under any legal environment. Moreover, mixed payment contracts are also analyzed and shown to never be optimal.

scholarly journals Contracts and Technology Adoption

2007 ◽  
Vol 97 (3) ◽  
pp. 916-943 ◽  
Author(s):  
Daron Acemoglu ◽  
Pol Antràs ◽  
Elhanan Helpman
Keyword(s):  
Technology Adoption ◽  
Comparative Advantage ◽  
Bargaining Game ◽  
Intermediate Inputs ◽  
Advanced Technologies ◽  
Ex Post ◽  
Contractual Incompleteness ◽  
The Impact ◽  
The Relationship

We develop a tractable framework for the analysis of the relationship between contractual incompleteness, technological complementarities, and technology adoption. In our model, a firm chooses its technology and investment levels in contractible activities by suppliers of intermediate inputs. Suppliers then choose investments in noncontractible activities, anticipating payoffs from an ex post bargaining game. We show that greater contractual incompleteness leads to the adoption of less advanced technologies, and that the impact of contractual incompleteness is more pronounced when there is greater complementary among the intermediate inputs. We study a number of applications of the main framework and show that the mechanism proposed in the paper can generate sizable productivity differences across countries with different contracting institutions, and that differences in contracting institutions lead to endogenous comparative advantage differences. (JEL D86, O33)

Understanding Outsourcing Risk Factors Based on Modularity

2014 ◽  
Vol 5 (1) ◽  
pp. 50-66
Author(s):  
Philip Huysmans ◽  
Peter De Bruyn ◽  
Shazdada Benazeer ◽  
Alain De Beuckelaer ◽  
Steven De Haes ◽  
...  
Keyword(s):  
Risk Factors ◽  
Project Management ◽  
Empirical Studies ◽  
Management Level ◽  
Project Outcomes ◽  
Communication Problems ◽  
Alternative Perspective ◽  
Ex Post ◽  
Court Proceedings ◽  
Modular Structures

The outsourcing of Information Systems development and maintenance to external and specialized partners is a frequent practice among contemporary organizations. However, outsourcing projects have been proven to be prone for failure. As a result, practitioners and scholars have suggested a variety of outsourcing risk factors which may lead to unsuccessful project outcomes, as well as possible remedies to mitigate them. Empirical studies nevertheless continue to report frequent failures in outsourcing projects. In this paper, the concept of modularity is used as an alternative perspective to analyze risks related to outsourcing projects. Such approach might help in supplementing existing outsourcing risk analyses with new, additional or more profound insights on this topic. It might also serve as an additional basis to list a more exhaustive enumeration of required mitigating actions, which in turn could lead to more succesful outsourcing projects. This alternative perspective is illustrated by a reanalysis of a failed outsourcing case which is documented in literature and available court proceedings: the BSkyB case. It is shown in a specific way how poorly designed modular structures at the technical and project communication and project management level could have been identified ex-ante. This identification may explain the manifestation of ex-post outsourcing risk factors such as ‘lack of required skills', ‘managing user expectation', ‘communication problems', ‘project management' and ‘significant integration requirements'.

The revelation principle and mechanism design

2020 ◽  
pp. 661-719
Author(s):  
David M. Kreps
Keyword(s):  
Mechanism Design ◽  
Adverse Selection ◽  
Optimal Contract ◽  
Gains From Trade ◽  
Revelation Principle ◽  
Ex Post ◽  
The Government ◽  
Role Of The Government

This chapter evaluates a more general attack on optimal contract and mechanism design stressing cases of adverse selection, which makes use of the revelation principle. One should be clear about the uses to which the revelation principle is put. It can be thought of as a statement about how actually to implement contracts. But it may be better to use it with greater circumspection as a tool of analysis for finding the limits of what outcomes can be implemented, without reference to how best to implement a particular outcome. In some contexts of direct revelation, there will be situations ex post where the party in the role of the government knows that it can obtain further gains from trade from one or more of the parties who participated. Meanwhile, in many applications of the revelation principle, the party in the role of mechanism designer must be able to commit credibly to no subsequent (re)negotiation once it learns the types of the parties with which it is dealing.

scholarly journals Bidding with Securities: Auctions and Security Design

2005 ◽  
Vol 95 (4) ◽  
pp. 936-959 ◽  
Author(s):  
Peter M DeMarzo ◽  
Ilan Kremer ◽  
Andrzej Skrzypacz
Keyword(s):  
Ordered Set ◽  
Security Design ◽  
Ex Post ◽  
Auction Format ◽  
Auction Formats ◽  
Informal Settings

We study security-bid auctions in which bidders compete for an asset by bidding with securities whose payments are contingent on the asset's realized value. In formal security-bid auctions, the seller restricts the security design to an ordered set and uses a standard auction format (e.g., first- or second-price). In informal settings, bidders offer arbitrary securities and the seller chooses the most attractive bid, based on his beliefs, ex post. We characterize equilibrium and show that steeper securities yield higher revenues, that auction formats can be ranked based on the security design, and that informal auctions lead to the lowest possible revenues.

Review of State-Level Loan and Grant Funding Programs for Local Freight Rail Infrastructure

2013 ◽  
Author(s):  
Benjamin R. Sperry ◽  
Curtis A. Morgan
Keyword(s):  
State Level ◽  
Grant Funding ◽  
Private Industry ◽  
Performance Targets ◽  
Post Evaluation ◽  
Project Outcomes ◽  
Ex Post ◽  
Funding Programs ◽  
Development Goals ◽  
State And Local

This paper reports the results of a comprehensive review of state-level loan and grant funding programs specifically for local freight railroad infrastructure improvements. A total of 33 unique funding programs exist in 24 states. A majority of the programs are administered through the State DOT; however, other agencies can be involved. Programs typically offer a low-interest loan, grant, or a combination of loan and grant assistance; however, some loan programs allow for conversion to a grant if performance targets (typically jobs or local carloads) are achieved. Eligible entities typically include public agencies, freight railroad companies, or private industry. While these programs appear to be providing local communities with much-needed funding for rail projects, this review finds that administrative details of state-level funding programs within the public domain, such as published project selection criteria or a clear process of decision-making for funding, are the exception rather than the rule. Furthermore, ex post evaluation of project outcomes appears to be rare, underscoring the need for greater transparency in reporting of funding awards and assessment of how funding has been used to advance economic development goals. The findings from this paper can be used by state and local policymakers considering the creation of loan or grant funding programs for freight railroad infrastructure projects or by those who are seeking to improve existing programs.

The Welfare Implications of Health Capital Investment

2014 ◽  
Vol 04 (02) ◽  
pp. 1450007 ◽  
Author(s):  
Sara B. Holland
Keyword(s):  
Health Care ◽  
Health Insurance ◽  
Capital Investment ◽  
Investment Decision ◽  
Optimal Contract ◽  
Health Capital ◽  
Ex Post ◽  
Investment Level ◽  
Welfare Implications ◽  
Provide Health Insurance

I present a model of the health capital investment decision of a firm using a moral hazard framework. Health capital investment increases the probability that a worker is present and productive. The firm cannot verify a worker's health capital investment decision. When a firm invests in health capital, the investment is verifiable because the firm contracts with the insurer. I derive the optimal contract for when the worker and for when the firm invests in health capital. When the firm invests in health capital, the level of investment is higher and wages are less volatile. In my model, firms invest more than workers because of a production externality and because it is less costly to invest in health capital than to compensate the worker for bearing the risk of an uncertain labor realization. This result improves welfare, contrary to the benchmark that workers consume more health care than is efficient ex post when firms provide health insurance. Unlike the benchmark model of a worker and insurer, my model includes a profit maximizing firm, includes an endogenous probability of getting sick, and allows the insurer to set premiums by anticipating the health care investment level of the insured.

scholarly journals The Optimal Multistage Effort and Contract of VC’s Joint Investment

2015 ◽  
Vol 2015 ◽  
pp. 1-14
Author(s):  
Meng Wu
Keyword(s):  
Capital Investment ◽  
Stackelberg Game ◽  
Decision Making Process ◽  
Game Model ◽  
Venture Capitalists ◽  
Optimal Contract ◽  
Venture Capital Investment ◽  
Ex Post ◽  
Ex Ante

If the venture project has a great demand of investment, venture entrepreneurs will seek multiple venture capitalists to ensure necessary funding. This paper discusses the decision-making process in the case that multiple venture capitalists invest in a single project. From the beginning of the project till the withdrawal of the investment, the efforts of both parties are long term and dynamic. We consider the Stackelberg game model for venture capital investment in multiple periods. Given the optimal efforts by the entrepreneurs, our results clearly show that as time goes, in every single period entrepreneurs will expect their share of revenue paid to shrink. In other words, they expect a higher ex ante payment and a lower ex post payment. But, in contrast, venture capitalists are expecting exactly the opposite. With a further analysis, we also design an optimal contract in multiple periods. Last but not the least, several issues to be further investigated are proposed as well.

scholarly journals Contractual Incompleteness for External Risks

2010 ◽  
Vol 10 (1) ◽  
Author(s):  
Susheng Wang
Keyword(s):  
Incomplete Contracts ◽  
Optimal Contract ◽  
Incomplete Contract ◽  
Employment Contract ◽  
Control Option ◽  
Ex Post ◽  
Ex Ante ◽  
Contractual Incompleteness ◽  
Incentive Problems

In a model with internal and external risks together with incentive problems, this paper investigates the role of a risky environment on contractual incompleteness. We consider a typical employment contract with an extra control option. This option is contractable ex ante, exercisable ex post, and good for incentives. But, the employer may choose not to have it in a contract. We identify some interesting circumstances under which the option is not in the optimal contract. Our main findings are that (1) external risks determine contractual incompleteness, and (2) a complete contract can better handle incentives, while an incomplete contract can better handle external risks. Hence, our analysis of incomplete contracts is somewhat consistent with Williamson's (1985) idea of low-powered incentives inside the firm and high-powered incentives outside the firm.

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