nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2017‒02‒19
three papers chosen by
Guillem Roig
University of Melbourne

  1. Cost Uncertainty and Time Overruns in Public Procurement: a Scoring Auction for a Contract with Delay Penalties By Dosi, Cesare; Moretto, Michele
  2. A Dynamic Mechanism Design with Overbooking, Different Deadlines, and Multi-unit Demands By Ryuji Sano
  3. Assessing Managerial Ability: Implications for Corporate Governance By Benjamin Hermalin; Michael Weisbach

  1. By: Dosi, Cesare; Moretto, Michele
    Abstract: Drawing on the real-options theory we analyse bidding behaviour in a sealed-bid-first-score procurement auction where suppliers, facing variable production costs, must simultaneously report the contract price and the cost level at which they intend to perform the project. We show that this award mechanism is potentially able to maximize total welfare. Next we look at the time incentives required to ensure compliance with the promised optimal trigger value. We show that ex-post efficiency may call for delay penalties higher than the anticipated harm caused by time overruns, in so doing questioning the efficiency rationale of existing liquidated damages rules.
    Keywords: Public Procurement, Fixed-price Contracts, Real Options, Time Overruns, Scoring Auctions, Liquidated Damages, Research Methods/ Statistical Methods, C61, D44, D86, K12,
    Date: 2017–02–08
  2. By: Ryuji Sano (Institute of Economic Research, Kyoto University)
    Abstract: This paper considers a dynamic mechanism design in which multiple objects with different consumption deadlines are allocated over time. Agents arrive over time and may have multi-unit demand. We characterize necessary and sufficient condition for periodic ex-post incentive compatibility and provide the optimal mechanism that maximizes the seller's expected revenue under regularity conditions. When complete contingent-contracts are available, the optimal mechanism can be interpreted as an "overbooking" mechanism. The seller utilizes overbooking for screening and price-discriminating advance agents. When agents demand multiple objects as complements, the seller may face a tradeoff between the last-minute price of the current object and the future profit.
    Keywords: dynamic mechanism design, optimal auction, overbooking, price discrimination, revenue management
    JEL: D82 D44
    Date: 2017–02
  3. By: Benjamin Hermalin; Michael Weisbach
    Abstract: A manager’s current and potential future employers are continually assessing her or his ability. Such assessment is a crucial component of corporate governance and this chapter provides an overview of the research on that aspect of governance. In particular, we review how assessment generates incentives (both good and bad), generates risks that must be faced by both managers and firms, and affects the contractual relationships between those parties in important ways. Assessment (or learning) proves a key perspective from which to study, evaluate, and possibly even regulate corporate governance. Moreover, because learning is a behavior notoriously subject to systematic biases, this perspective is a natural avenue through which to introduce behavioral and psychological insights into the study of corporate governance.
    JEL: D81 D83 G34 M12
    Date: 2017–02

This nep-cta issue is ©2017 by Guillem Roig. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.