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Author: Murat Bayiz Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
We study the problem of the manager of a project consisting of two sub-projects or tasks which are outsourced to different subcontractors. The project manager earns more revenue from the project if it is completed faster, but he cannot observe how hard subcontractors work, only the stochastic duration of their tasks. We derive the optimal linear incentive contracts to offer to the subcontractors when the tasks are conducted in series or in parallel. We compare them to the fixed-price contracts often encountered in practice, and discuss when incentive contracts lead to bigger performance improvement. We characterize how the incentive contracts vary with the subcontractors' risk aversion and cost of effort, the marginal effect of subcontractor effort, and the variability of task durations. We find that this dependence is sometimes counter-intuitive in nature. For instance, for parallel tasks, if the first agent's task is on the critical path and his variability increases, the project manager should induce the first agent to work less hard and the second agent to work harder.
Author: Murat Bayiz Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
We study the problem of the manager of a project consisting of two sub-projects or tasks which are outsourced to different subcontractors. The project manager earns more revenue from the project if it is completed faster, but he cannot observe how hard subcontractors work, only the stochastic duration of their tasks. We derive the optimal linear incentive contracts to offer to the subcontractors when the tasks are conducted in series or in parallel. We compare them to the fixed-price contracts often encountered in practice, and discuss when incentive contracts lead to bigger performance improvement. We characterize how the incentive contracts vary with the subcontractors' risk aversion and cost of effort, the marginal effect of subcontractor effort, and the variability of task durations. We find that this dependence is sometimes counter-intuitive in nature. For instance, for parallel tasks, if the first agent's task is on the critical path and his variability increases, the project manager should induce the first agent to work less hard and the second agent to work harder.
Author: Renato E. Reside Publisher: ISBN: Category : Contingent liabilities (Accounting) Languages : en Pages : 62
Book Description
This study uses a simple model to solve for the optimal contracts under a situation where the government has asymmetric information about the quality of investors in essential infrastructure goods and services. The analysis concludes that it is possible for the government to offer a set of incentive-compatible contracts to investors.
Author: Hugo Rodrigo Mora Carrasco Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation is composed of two parts. In the first part we study project-based supply chains with changing product specifications, and in the second part we present a model that analyzes the pricing problem of platform products with service subscriptions. Project-based supply chains in high-tech industries such as aerospace and defense often involve uncertainties in product specifications, which can lead to project cost overruns and delays. According to a 2011 Government Accountability Office assessment of selected Department of Defense weapons programs, the total portfolio's acquisition costs rose \$79 billion from 2008 to 2010, and projects with changes to specifications experienced roughly four times more growth in costs and three to four times greater delays compared to projects with unchanged requirements. We argue that mismanagement of the uncertainties in product specifications and schedule can cause misalignments between supply chain partners that ultimately result in added cost overruns and delays to the project. To study this problem, we consider a stylized project-based supply chain consisting of a buyer (such as the Department of Defense), a manufacturer (or contractor) hired by the buyer to manage the project, and a critical subassembly supplier (or subcontractor). We present two models: a procurement model and a development model. In the procurement model, the buyer orders a fixed number of units of an end product, but there is uncertainty in the number of units that will be needed earlier with the original specifications and the number of units that will be needed later with modified specifications. In the development model, the project consists of developing a single end product with a complex technology being created by the subassembly supplier. In these two settings, we analyze the incentive conflict between the manufacturer and the supplier when the buyer considers a possible change in the product's specifications. If the supplier begins development early -- or produces too many units early -- and changes are made to the specifications, then the project faces rework and/or holding costs. If the supplier postpones development -- or produces too few units early -- then the project is exposed to delays and penalty fees for late delivery. We apply many commonly used contracts to these settings (such as fixed-price, cost-sharing, and time-incentive contracts), and determine which ones are able to achieve coordination of the supply chain. We show that procurement projects can be coordinated by sharing the costs and risks in any way between the supplier and the manufacturer. However, development projects can only be coordinated by transferring all of the risk of the project to the supplier, since the supplier's actions are unobservable by the manufacturer. Nevertheless, these common contracts usually fail to achieve coordination under asymmetric information, where the manufacturer has private information on the order's forecast and the supplier has private information on the subassembly's costs of development or rework/holding. A more complex sequential revelation contract is presented that achieves truthful information sharing and supply chain coordination in the procurement model by aligning incentives through a menu of contracts contingent on the manufacturer's private information and on the supplier's private information as a function of her observable early production decision. However, we show that the sequential revelation contract does not achieve truthful information sharing in the development model, since the supplier not only has private information about her development costs, but also because her development efforts are unobservable by the manufacturer. In the second part of this dissertation we study the pricing decision of a firm that provides a subscription to a bundle consisting of a platform product and its associated service (e.g., an iPhone and a cellular phone plan, or a Kindle ebook reader with a magazine subscription). The firm's profit maximization problem is analyzed using a dynamic programming formulation and the customers' decisions are modeled using a reservation-price model. The pricing policy consists of two prices: the product price in the first period and the per-period subscription price. The firm incurs a setup cost for providing a product to each new customer and a service cost in each period that the customer chooses to continue his subscription. Under the assumption that the customer's valuation for the product is independent of the customer's valuation for the services associated with the product, we find that, for the single-period case, the optimal prices are independent of each other and of the number of customers subscribed to the bundle. For the multi-period case we show that the problem reduces to the single-period case with a simplified cost structure. Moreover, we demonstrate that these results extend to the stationary infinite-horizon case. We show that the optimal product price is increasing in the product cost, but decreasing in the profit margin generated by the subscription price. In contrast, the optimal subscription price depends on the service cost, but is independent of the product price and product cost.
Author: Svenja C. Sommer Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Many novel projects are characterized by ambiguity (impossibility to recognize all influence variables and to foresee all possible events) and complexity (interaction of many performance influence variables, making the overall performance difficult to estimate). Two fundamental approaches to project management under these conditions have been identified: Selectionism, or pursuing multiple approaches independently of one another and picking the best one ex post, and trial & error learning, or flexibly adjusting to new information about the environment as it emerges. While the actions to be taken under the selectionist approach can be defined at the outset, and thus standard contracting theory applies, trial & error learning involves taking actions after ambiguity has been resolved, making it inherently difficult to set incentives for managers. Actions and targets cannot be specified at the outset, since they would no longer be optimal at the time the actions should be executed. In a search model in a complex performance landscape, this paper first shows that trial & error learning is more attractive than selectionism when ambiguity and high complexity combine. Second, for this situation of trial & error learning, we construct incomplete contracts between a principal (e.g., the firm) and an agent (e.g., a project manager) that can re-instate optimal incentives for the agent. This is achieved by a priori defining time points and aspects of re-negotiation, depending on what each party learns. As the project manager, as an employee, is ambiguity averse, he must be protected from unforeseeable variations in his compensation. The principal, in contrast, is willing to accept ambiguity, and the incomplete contract offers him a means to optimally re-direct the agent's actions in return or insuring the agent against payment ambiguity.
Author: David G. Carmichael Publisher: CRC Press ISBN: 9789058093332 Category : Technology & Engineering Languages : en Pages : 218
Book Description
Project Management has, as one of its essential ingredients, development, use, administration and management of contract. On any significant project here will be many players and stakeholders contractually linked. It is essential therefore that all project personnel be aware of contract matters. The difficulty with this for project personnel in the past, however, has been in finding a systematic and comprehensive coverage of contractual matters in the literature, written at an understandable lever. This book goes toward filling this void. This book focuses on the important issues of whether to contract out (outsource) work or do it in-house, on the numerous contractual payment options including bonuses and penalties, and on the delivery method or contractual relationships between project participants. This is provided in an international context, where project management takes on an added dimension related to differing practices and customs between countries. Numerous case studies and exercises are given to promote the understanding of the contractual and project management issues covered.
Author: Markus K. Brunnermeier Publisher: OUP Oxford ISBN: 0191606928 Category : Business & Economics Languages : en Pages : 262
Book Description
Asset prices are driven by public news and information that is often dispersed among many market participants. These agents try to infer each other's information by analyzing price processes. In the past two decades, theoretical research in financial economics has significantly advanced our understanding of the informational aspects of price processes. This book provides a detailed and up-to-date survey of this important body of literature. The book begins by demonstrating how to model asymmetric information and higher-order knowledge. It then contrasts competitive and strategic equilibrium concepts under asymmetric information. It also illustrates the dependence of information efficiency and allocative efficiency on the security structure and the linkage between both efficiency concepts. No-Trade theorems and market breakdowns due to asymmetric information are then explained, and the existence of bubbles under symmetric and asymmetric information is investigated. The remainder of the survey is devoted to contrasting different market microstructure models that demonstrate how asymmetric information affects asset prices and traders' information , which provide a theoretical explanation for technical analysis and illustrate why some investors "chase the trend." The reader is then introduced to herding models and informational cascades, which can arise in a setting where agents' decision-making is sequential. The insights derived from herding models are used to provide rational explanations for stock market crashes. Models in which all traders are induced to search for the same piece of information are then presented to provide a deeper insight into Keynes' comparison of the stock market with a beauty contest. The book concludes with a brief summary of bank runs and their connection to financial crises.
Author: Murat Bayiz
Author: Murat Bayiz
Author: Murat Bayiz
Author: Renato E. Reside
Author: Wook-Hyon Jo
Author: 
Author: Hugo Rodrigo Mora Carrasco
Author: Svenja C. Sommer
Author: David G. Carmichael
Author: James Pemberton
Author: Markus K. Brunnermeier