scholarly journals An optimal time incentive/disincentive -based compensation in contracts with multiple agents

2016 ◽  
Vol 16 (4) ◽  
pp. 35-53 ◽  
Author(s):  
S. Mahdi Hosseinian
Keyword(s):  
Risk Aversion ◽  
Completion Time ◽  
Optimization Problem ◽  
Risk Attitude ◽  
Theoretical Development ◽  
Optimal Time ◽  
Risk Averse ◽  
Multiple Agents ◽  
Time Saving ◽  
Project Completion

This paper establishes an optimal time incentive/disincentive-based compensation in a contract between a principal and a team of agents. The establishment is based on solving an optimization problem. In order to validate the paper's theoretical development practitioners were engaged in a designed exercise. The paper demonstrates that, at the optimum: the proportion of time incentive/disincentive compensation among agents with the same risk-attitude should reflect the levels of their contributions; the proportion of time incentive/disincentive among agents with the same level of contribution should be lowered for agents with higher levels of risk aversion; and the proportion of time incentive/disincentive to a team of risk averse agents should reduce, and the fixed component of the team fee should increase, when the agents in the team become more risk-averse or the level of the uncertainty in project completion time increases. The paper’s outcome provides guidance to those involved in contracts design for choosing the best way to reward (penalise) multiple agents, form a team, and allow for any time saving (overrun) through the terms of a contract.    

scholarly journals OPTIMAL OUTCOME SHARING WITH A CONSORTIUM OF CONTRACTORS

2015 ◽  
Vol 22 (5) ◽  
pp. 655-665 ◽  
Author(s):  
S. Mahdi HOSSEINIAN ◽  
David G. CARMICHAEL
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Risk Averse ◽  
Optimal Outcome ◽  
Original Solution ◽  
Project Outcome ◽  
Risk Neutral ◽  
Current Practices

Where a consortium of contractors is involved, there exist no guidelines in the literature on what the outcome sharing arrangement should be. The paper addresses this shortfall. It derives the optimal outcome sharing arrangement for risk-neutral and risk-averse contractors within the consortium, and between the consortium and a risk-neutral owner. Practitioners were engaged in a designed exercise in order to validate the paper’s propositions. The paper demonstrates that, at the optimum: the proportion of outcome sharing among contractors with the same risk-attitude should reflect the levels of their contributions; the proportion of outcome sharing among contractors with the same level of contribu­tion should be lower for contractors with higher levels of risk aversion; a consortium of risk-neutral contractors should receive or bear any favourable or adverse project outcome respectively; and the proportion of outcome sharing to a con­sortium of risk-averse contractors should reduce, and the fixed component of the consortium fee should increase, when the contractors become more risk-averse or the level of the project outcome uncertainty increases. The paper proposes an original solution to the optimal sharing problem in contracts with a consortium of contractors, thereby contributing to current practices in contracts management.

Cutoff Threshold Decisions for Classification Algorithms with Risk Aversion

2021 ◽  
Author(s):  
Andrea C. Hupman
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Classification Algorithm ◽  
Classification Algorithms ◽  
Risk Averse ◽  
Optimal Cutoff ◽  
Data Set ◽  
Risk Neutral ◽  
Bayes Algorithm ◽  
Cutoff Threshold

Classification algorithms predict the class membership of an unknown record. Methods such as logistic regression or the naïve Bayes algorithm produce a score related to the likelihood that a record belongs to a particular class. A cutoff threshold is then defined to delineate the prediction of one class over another. This paper derives analytic results for the selection of an optimal cutoff threshold for a classification algorithm that is used to inform a two-action decision in the cases of risk aversion and risk neutrality. The results provide insight to how the optimal cutoff thresholds relate to the associated costs and the sensitivity and specificity of the algorithm for both the risk neutral and risk averse decision makers. The optimal risk averse threshold is not reliably above or below the optimal risk neutral threshold, but the relation depends on the parameters of a particular application. The results further show the risk averse optimal threshold is insensitive to the size of the data set or the magnitude of the costs, but instead is sensitive to the proportion of positive records in the data and the ratio of costs. Numeric examples and sensitivity analysis derive further insight. Results show the percent value gap from a misspecified risk attitude increases as the specificity of the classification algorithm decreases.

Using PERT to Optimise the Completion Time of Air-Conditioning and Mechanical Ventilation (ACMV) Project

2019 ◽  
Vol 892 ◽  
pp. 266-273
Author(s):  
Chuan Kian Pang ◽  
Noor Ajian Mohd-Lair ◽  
Yi Sheng Chua
Keyword(s):  
Mechanical Ventilation ◽  
Air Conditioning ◽  
Completion Time ◽  
Critical Path ◽  
Project Planning ◽  
Optimal Time ◽  
Planning And Scheduling ◽  
Project Completion ◽  
High Penalty ◽  
Completion Times

An air-conditioning and mechanical ventilation (ACMV) construction project involved many interrelated construction activities with varying durations and multiple dependencies. This paper focuses on the development of a best possible project planning and scheduling technique that can help the project manager to manage and complete the ACMV project in optimal time. The program evaluation and review technique (PERT) is used in this research. The PERT technique helps to determine the probabilities of various stages of the project by specified deadlines and identify the activities on the critical path that have high potential for causing delays in the project completion time. The completion times of 72, 76, 79, and 80 weeks were taken for the PERT analysis. Deadline of 72 weeks is the contractual period of the ACMV project as specified in the contract. Completion time of 76 weeks is the critical path of the project as analyzed by the PERT technique. The deadline of 79 weeks is the proposed completion time for the ACMV project whereas 80 weeks are the actual completion date of the project. The PERT analysis revealed that the project completion time of 72 weeks, which is as stated in the contractual completion time, yielded the probability of completion of 2.67% only. This analysis shows that the contractual period is impossible to be achieved and it is an unrealistic time setting. Further negotiation is required including changing or extending of the contractual completion time. The other completion times are able to be achieved but the company may need to face the high penalty costs due to the delays in completion time.

scholarly journals Optimization Problem of Insurance Investment Based on Spectral Risk Measure and RAROC Criterion

2018 ◽  
Vol 2018 ◽  
pp. 1-7
Author(s):  
Xia Zhao ◽  
Hongyan Ji ◽  
Yu Shi
Keyword(s):  
Risk Aversion ◽  
Optimization Problem ◽  
Risk Measures ◽  
Risk Measure ◽  
Risk Attitude ◽  
Investment Strategy ◽  
Marginal Effect ◽  
Investment Ratio ◽  
Spectral Risk Measure ◽  
The Impact

This paper introduces spectral risk measure (SRM) into optimization problem of insurance investment. Spectral risk measure could describe the degree of risk aversion, so the underlying strategy might take the investor's risk attitude into account. We establish an optimization model aiming at maximizing risk-adjusted return of capital (RAROC) involved with spectral risk measure. The theoretical result is derived and empirical study is displayed under different risk measures and different confidence levels comparatively. The result shows that risk attitude has a significant impact on investment strategy. With the increase of risk aversion factor, the investment ratio of risk asset correspondingly reduces. When the aversive level increases to a certain extent, the impact on investment strategies disappears because of the marginal effect of risk aversion. In the case of VaR and CVaR without regard for risk aversion, the investment ratio of risk asset is increasing significantly.

scholarly journals Risk-Aversion for Negative Health Outcomes May Promote Individual Compliance to Containment Measures in Covid-19 Pandemic

2021 ◽  
Vol 12 ◽  
Author(s):  
Chiara Cerami ◽  
Caterina Galandra ◽  
Gaia Chiara Santi ◽  
Alessandra Dodich ◽  
Stefano Francesco Cappa ◽  
...  
Keyword(s):  
Risk Aversion ◽  
Health Outcomes ◽  
Stressful Life Events ◽  
Risk Attitude ◽  
Italian Population ◽  
Risk Averse ◽  
Protection Strategies ◽  
Containment Measures ◽  
The Individual ◽  
Negative Health Outcomes

First-person experience of stressful life events can change individuals' risk attitudes, driving to increased or decreased risk perception. This shift to more risk-averse or risk-loving behaviors may find a correlate in the individual psycho-socio-emotional profile. To this purpose, we aimed to estimate the relationship between differences in risk-taking attitudes toward possible negative health outcomes and psycho-socio-emotional dimensions modulating the experience of life-threatening situations, in the context of the Covid-19 pandemic. In March 2020, we launched the PsyCovid Study (https://wprn.org/item/428452) to assess psycho-socio-emotional changes due to Covid-19 pandemic in the Italian population. Additionally, we distributed to 130 participants the Covid-19 Risk Task, including monetary and health-related stimuli, estimating a measure of risk-aversion toward health and classifying participants on the basis of their risk-attitude profiles. The set of psycho-socio-emotional variables was reduced to three PCA components: Proactivity, Isolation, Inactivity. The individual degree of risk-aversion toward negative health outcomes was directly related to Proactivity, encasing empathic, social support and positive coping strategies, which may prompt individuals to put in place self-protection strategies toward possible negative health consequences. These findings indicate that a risk-averse profile toward possible negative health outcomes may be associated to higher levels of individual prosocial and proactive dispositions, possibly making individuals' more compliant with the social and hygienic guidelines and, thus, reducing their exposure to the SARS-CoV-2 infection.

scholarly journals PENJADWALAN PROYEK DENGAN PENERAPAN SIMULASI MONTE CARLO PADA METODE PROGRAM EVALUATION REVIEW AND TECHNIQUE (PERT)

OPSI ◽  
2017 ◽  
Vol 10 (2) ◽  
pp. 150
Author(s):  
Widya Nurul Shofa ◽  
Irwan Soejanto ◽  
Trismi Ristyowati
Keyword(s):  
Monte Carlo ◽  
Program Evaluation ◽  
Project Scheduling ◽  
Completion Time ◽  
Raw Materials ◽  
Residential Development ◽  
Optimal Time ◽  
Conviction Rate ◽  
Project Completion ◽  
Causes Of Delays

PT At Taqwa Sejahtera has implemented of residential development that duration about 152 day. Due to delay in the supply of primary raw materials, the processing time getting longer or not accordance to planning schedule on October 27, 2017. The project delay have impact on the company which will given punishment.The aim of this study research to the evaluate the project implementation schedule and project scheduling for more optimal time, with the best probability, and minimize the influence of the causes of delays to the project completion time. Project scheduling processing is done by using Program Evaluation Review and Technique (PERT) and implementation with Monte Carlo simulation using Ms Excel software.Based on data processing, the calculation of the project point accelerated time to 147 days with cost Rp 417.315.909,25 and probability of 63%, whereas with the application of Monte Carlo simulus the average conviction rate is at 156 days with cost Rp 402,310,654.25 and probability of 94%.  

scholarly journals Program Evaluation and Review Technique Analysis of an Engineering Project

2017 ◽  
Vol 2 (1) ◽  
Author(s):  
Adetoye Aribisala ◽  
Adegboyega Otenaike ◽  
Olusegun Balogun ◽  
Lizzy Ofusori
Keyword(s):  
Program Evaluation ◽  
Time Management ◽  
Completion Time ◽  
Iron Ore ◽  
Critical Path ◽  
Analysis Data ◽  
Optimal Time ◽  
Financial Loss ◽  
Engineering Project ◽  
Project Completion

Between fifty to eighty percentof the projects known are not completed within the specified number of working days. Either the contractor was assessed liquidated damages or time extensions were authorized, necessitating additional manpower and / or extended working hours.The result in both cases was animmediate financial loss to the contractors; these losses were ultimately passed on to the company in general, contributing to spiraling project costs.Therefore, this paper examines and analysis data related to the project of the reactivation of line 1 for the production of iron ore concentrates of national Iron Ore Mining Company, Itakpe. Data collected involved the optimistic time, most likely and pessimistic times of completion of critical activities making up the project. This data was analyzed using the Program Evaluation and Review Technique(PERT), a MATLAB program was written to determine the critical path and the probability of project completion at a simulated time. It was found out that the project should have been completed in an optimal time of between 110 and 120 days as against the actual completion time of 180 days. The result of the simulated optimal completion time was compared to the actual completion time. Management agreed to adopt the PERT technique in future project works in the organization.

Risk Attitude and Corporate Investment under Output Market Uncertainty: Evidence from The Mekong River Delta, Vietnam

2016 ◽  
pp. 59-70
Author(s):  
Ninh Le Khuong ◽  
Nghiem Le Tan ◽  
Tho Huynh Huu
Keyword(s):  
Negative Relationship ◽  
Risk Attitude ◽  
Business Strategies ◽  
Risk Averse ◽  
Market Uncertainty ◽  
Firm Investment ◽  
Output Market ◽  
The Impact ◽  
The Relationship

This paper aims to detect the impact of firm managers’ risk attitude on the relationship between the degree of output market uncertainty and firm investment. The findings show that there is a negative relationship between these two aspects for risk-averse managers while there is a positive relationship for risk-loving ones, since they have different utility functions. Based on the findings, this paper proposes recommendations for firm managers to take into account when making investment decisions and long-term business strategies as well.

Eliciting Risk Preferences and Elasticity of Substitution

2020 ◽  
Vol 17 (4) ◽  
pp. 314-329
Author(s):  
Johan Burgaard ◽  
Mogens Steffensen
Keyword(s):  
Risk Aversion ◽  
Discount Rate ◽  
Predictive Power ◽  
Recursive Utility ◽  
Risk Averse ◽  
Indirect Utility ◽  
Consistent Estimation ◽  
On Certainty ◽  
Certainty Equivalents ◽  
Elasticity Of Intertemporal Substitution

Risk aversion and elasticity of intertemporal substitution (EIS) are separated via the celebrated recursive utility building on certainty equivalents of indirect utility. Based on an alternative separation method, we formulate a questionnaire for simultaneous and consistent estimation of risk aversion, subjective discount rate, and EIS. From a representative group of 1,153 respondents, we estimate parameters for these preferences and their variability within the population. Risk aversion and the subjective discount rate are found to be in the orders of 2 and 0, respectively, not diverging far away from results from other studies. Our estimate of EIS in the order of 10 is larger than often reported. Background variables like age and income have little predictive power for the three estimates. Only gender has a significant influence on risk aversion in the usually perceived direction that females are more risk-averse than males. Using individual estimates of preference parameters, we find covariance between preferences toward risk and EIS. We present the background reasoning on objectives, the questionnaire, a statistical analysis of the results, and economic interpretations of these, including relations to the literature.

scholarly journals Market-based instruments for risk-averse farmers: rubber agroforest conservation in Jambi Province, Indonesia

2016 ◽  
Vol 22 (2) ◽  
pp. 133-155 ◽  
Author(s):  
Utkur Djanibekov ◽  
Grace B. Villamor
Keyword(s):  
Income Inequality ◽  
Risk Aversion ◽  
Real Options ◽  
Risk Averse ◽  
Variance Model ◽  
Income Uncertainty ◽  
Real Options Approach ◽  
Pigovian Taxes ◽  
Rubber Agroforest ◽  
Mean Variance

AbstractThis paper investigates the effectiveness of different market-based instruments (MBIs), such as eco-certification premiums, carbon payments, Pigovian taxes and their combination, to address the conversion of agroforests to monoculture systems and subsequent effects on incomes of risk-averse farmers under income uncertainty in Indonesia. For these, the authors develop a farm-level dynamic mean-variance model combined with a real options approach. Findings show that the conservation of agroforest is responsive to the risk-aversion level of farmers: the greater the level of risk aversion, the greater is the conserved area of agroforest. However, for all risk-averse farmers, additional incentives in the form of MBIs are still needed to prevent conversion of agroforest over the years, and only the combination of MBIs can achieve this target. Implementing fixed MBIs also contributes to stabilizing farmers’ incomes and reducing income risks. Consequently, the combined MBIs increase incomes and reduce income inequality between hardly and extremely risk-averse farmers.

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