Journal ArticleDOI
Asymmetry of Information, Regulatory Lags and Optimal Incentive Contracts: Theory and Evidence
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In this paper, the authors derived the optimal incentive parameter to be used in terms of information available to the utility in the presence of informational asymmetry, where the investment in cost reduction made by the contractor is unobservable to the user.Abstract:
procurements. The procurement process and the equilibrium bidding behavior is modelled in sections II and III and the effect of contract parameters and other structural variables on expected procurement costs are explicitly derived. The existing models are enriched by incorporating a technology for cost reduction where the investment in cost reduction made by the contractor is unobservable to the utility. In the presence of such informational asymmetry, the optimal incentive parameter to be used is derived in terms of information available to the utility. In section IV the effects of changing contractual parameters and other structural variables (number of contractors bidding, the riskiness of the production process, etc.) on equilibrium bidding behavior and ex post cost reduction incentives are derived. In section V we relate some of the implications of our model to a sampleread more
Citations
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Journal ArticleDOI
Incentive contracting as a project management tool
H.J. Herten,W.A.R. Peeters +1 more
TL;DR: In this article, the principle of incentive contracting is introduced and an historical background is given, and the use of incentive provisions is demonstrated, and it is noted that in Europe, the European Space Agency is practically the only organization to adopt incentives, although possible use in other areas is indicated.
Journal ArticleDOI
Financial incentives for cost control under moral hazard
TL;DR: In this paper, the problem of finding the optimal incentive structure for a fixed-price incentive contract is formulated as a constrained optimization problem, with the constraint arising from the returns to each of the parties to the contract.
References
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Journal ArticleDOI
Theory of the firm: Managerial behavior, agency costs and ownership structure
TL;DR: In this article, the authors draw on recent progress in the theory of property rights, agency, and finance to develop a theory of ownership structure for the firm, which casts new light on and has implications for a variety of issues in the professional and popular literature.
Journal ArticleDOI
Moral Hazard and Observability
TL;DR: In this article, the role of imperfect information in a principal-agent relationship subject to moral hazard is considered, and a necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived.
Posted Content
The Economic Theory of Agency: The Principal's Problem.
TL;DR: The canonical agency problem can be posed as follows as discussed by the authors : the agent may choose an act, aCA, a feasible action space, and the random payoff from this act, w(a, 0), will depend on the random state of nature O(EQ the state space set), unknown to the agent when a is chosen.
Journal ArticleDOI
Increasing risk: I. A definition
TL;DR: The authors tried to answer the question: When is a random variable Y "more variable" than another random variable X "less variable" by asking when a variable X is more variable than another variable Y.