nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2011‒02‒26
six papers chosen by
Arvi Kuura
Parnu College - Tartu University

  1. Quantity Choice in Unit Price Contract Procurements By Mandell, Svante; Brunes, Fredrik
  2. Contract Structure, Risk Sharing and Investment Choice By Greg Fischer
  3. How to select Instruments supporting R&D and Innovation by Industry By Marcel J.L. de Heide; Amit Kothiyal
  4. When power makes others speechless: The negative impact of leader power on team performance By Leigh Plunkett Tost; Francesca Gino; Richard P. Larrick
  5. Repeated moral hazard and contracts with memory: The case of risk-neutrality By Ohlendorf, Susanne; Schmitz, Patrick W.
  6. Integrating scientific assessment of wetland areas and economic evaluation tools to develop an evaluation framework to advise wetland management By Jackie Robinson; Jared Dent; Gabriella Schaffer

  1. By: Mandell, Svante (vti - Swedish National Road & Transport Research Institute); Brunes, Fredrik (KTH)
    Abstract: A common approach for procuring large construction projects is through Unit Price Contracts. By the means of a simple model, we study the optimal quantity to procure under uncertainty regarding the actual required quantity given that the procurer strives to minimize expected total costs. The model shows that the quantity to procure in optimum follows from a trade-off between the risk of having to pay for more units than actually necessary and of having to conduct costly renegotiations. The optimal quantity increases in costs associated with possible renegotiations, decreases in expected per unit price, and, if a renegotiation does not increase per unit price too much, decreases in the uncertainty surrounding the actual quantity required.
    Keywords: Unit price contracts; procurement; construction
    JEL: D44 H54 H57
    Date: 2011–02–15
  2. By: Greg Fischer
    Abstract: Few microfinance-funded businesses grow beyond subsistence entrepreneurship.This paper considers one possible explanation: that the structure of existingmicrofinance contracts may discourage risky but high-expected return investments.To explore this possibility, I develop a theory that unifies models of investmentchoice, informal risk sharing, and formal financial contracts. I then test thepredictions of this theory using a series of experiments with clients of a largemicrofinance institution in India. The experiments confirm the theoreticalpredictions that joint liability creates two inefficiencies. First, borrowers free-ride ontheir partners, making risky investments without compensating partners for thisrisk. Second, the addition of peer-monitoring overcompensates, leading to sharpreductions in risk-taking and profitability. Equity-like financing, in which partnersshare both the benefits and risks of more profitable projects, overcomes both of theseinefficiencies and merits further testing in the field.
    Keywords: investment choice, informal insurance, risk sharing, contract design, microfinance,experiment.
    JEL: O12 D81 C91 C92 G21
    Date: 2011–02
  3. By: Marcel J.L. de Heide (Erasmus University Rotterdam); Amit Kothiyal (Erasmus University Rotterdam)
    Abstract: We present a theoretical framework which allows for the comparison of the effectiveness of tax measures, loans and funding, in supporting industry-oriented research. We estimate for each of the instruments the exact contribution required by a firm to decide on investing in R&D, given the costs and probability of success of the project, and the foreseen change in profit following successful implementation of the research results. We apply Prospect Theory to analyse the risk attitude of the firm. By comparing the contribution required, we identify the instrument which is most effective, and therefore preferred by a government. Our analysis indicates that there exists a critical value for the probability of success of the project for which the modality of the most effective instruments changes. For a probability of success smaller than the critical value, a tax measures offering support only in case of successful completion of the project is preferred. For a probability higher than the critical value, a loan is most effective. The value of the critical probability depends on the perception of risk and loss aversion of the firm involved in the research.
    Keywords: R&D; innovation; firms; public policy
    JEL: D81 O38
    Date: 2011–02–03
  4. By: Leigh Plunkett Tost (University of Washington); Francesca Gino (Harvard Business School, Negotiation, Organizations & Markets Unit); Richard P. Larrick (Duke University)
    Abstract: We examine the impact of subjective power on leadership behavior and demonstrate that the psychological effect of power on leaders spills over to impact team effectiveness. Specifically, drawing from the approach/inhibition theory of power, power-devaluation theory, and organizational research on the antecedents of employee voice, we argue that a leader's experience of heightened power produces verbal dominance, which reduces perceptions of leader openness and team open communication. Consequently, there is a negative effect of leader power on team performance. Three studies find consistent support for this argument. The implications for theory and practice are discussed.
    Keywords: Power; Leadership; Teams; Communication; Talking; Dominance; Team Performance; Learning
    Date: 2011–02
  5. By: Ohlendorf, Susanne; Schmitz, Patrick W.
    Abstract: We consider a repeated moral hazard problem, where both the principal and the wealth-constrained agent are risk-neutral. In each of two periods, the agent can exert unobservable effort, leading to success or failure. Incentives provided in the second period act as carrot and stick for the first period, so that the effort level induced in the second period is higher after a first-period success than after a failure. If renegotiation cannot be prevented, the principal may prefer a project with lower returns; i.e., a project may be "too good" to be financed or, similarly, an agent can be "overqualified."
    Keywords: Dynamic moral hazard; hidden actions; limited liability
    JEL: D86 M52 J33 C73
    Date: 2011–01
  6. By: Jackie Robinson (School of Economics, The University of Queensland); Jared Dent; Gabriella Schaffer
    Abstract: Wetland ecosystems provide society with a range of valuable ecosystem services. However, wetlands worldwide are experiencing increasing pressure from a number of sources, caused by an interrelated combination of market failure and policy intervention failure. Whatever the cause, the result is massive degradation and loss of these ecosystems and ultimately, loss of their services. To better manage wetlands the availability of sufficient relevant and reliable scientific information is required together with an assessment tool capable of providing meaningful evaluations of the consequences of management. Current assessments of wetlands are often biased towards either economic or scientific issues, with limited attempts at integration. Evaluations that neglect integration overlook the complexity of wetland ecosystems and have failed to sufficiently protect these areas. This paper reviews the literature to propose an evaluation framework which combines a scientific assessment of wetland function with cost utility analysis (CUA) to develop a meaningful trade-off matrix. A dynamic approach to wetland assessment such as the hydro geomorphologic method (HGM), developed by the US Army Corps of Engineers, offers the opportunity to consider interrelationships between ecosystem process and functions and the resulting ecosystem services. CUA facilitates the evaluation of projects where the consequences of investment or no investment are complex and difficult to value in monetary terms. The evaluation framework described in this paper has the potential to deliver an integrated wetland management tool. However, for this potential to be realised, targeted interdisciplinary research by scientists and economists is required.
    Date: 2011

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