nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2011‒05‒14
thirteen papers chosen by
Arvi Kuura
Parnu College - Tartu University

  1. Good countries or good projects ? macro and micro correlates of World Bank project performance By Denizer, Cevdet; Kaufmann, Daniel; Kraay, Aart
  2. The make-or-buy public strategy. The case of government delivery of international aid in Spain By Hermano Rebolledo, Víctor; Martín Cruz, Natalia
  3. Optimal Coexistence of Long-term and Short-term contracts in Labor Markets By Inés Macho-Stadler; David Pérez-Castrillo; Nicolás Porteiro
  4. Why It Worked: Critical Success Factors of a Financial Reform Project in Africa By Peterson, Stephen
  5. Unique Identity Project in India: A Divine Dream or a Miscalculated Heroism? By Rajanish Dass
  6. Organizational paths of commercializing patented inventions: The effects of transaction costs, firm capabilities, and collaborative ties By Taehyun Jung; John P. Walsh
  7. Corporate governance practices and companiesÂ? R&D orientation: Evidence from European countries. By Bruno van Pottelsberghe
  8. Why IRR is Not the Rate of Return for Your Investment: Introducing AIRR to the Real Estate Community By Dean Altshuler; Carlo Alberto Magni
  9. The WACC Fallacy: The Real Effects of Using a Unique Discount Rate By Krüger, Philipp; Landier, Augustin; Thesmar, David
  10. Which criteria matter most in the evaluation of venture capital investments? By José Carlos Nunes; Elisabete Félix; Cesaltina Pires
  11. Choice Experiments in Enviromental Impact Assessment: The Toro 3 Hydroelectric Project and the Recreo Verde Tourist Center in Costa Rica By Carías Vega , Dora; Alpízar, Francisco
  12. A Theory of BOT Concession Contracts By Auriol, Emmanuelle; Picard, Pierre
  13. Materialistic Genius and Market Power: Uncovering the best innovations By Tirole, Jean; Weyl, Glen

  1. By: Denizer, Cevdet; Kaufmann, Daniel; Kraay, Aart
    Abstract: The authors use data from more than 6,000 World Bank projects evaluated between 1983 and 2009 to investigate macro and micro correlates of project outcomes. They find that country-level"macro"measures of the quality of policies and institutions are very strongly correlated with project outcomes, confirming the importance of country-level performance for the effective use of aid resources. However, a striking feature of the data is that the success of individual development projects varies much more within countries than it does between countries. The authors assemble a large set of project-level"micro"correlates of project outcomes in an effort to explain some of this within-country variation. They find that measures of project size, the extent of project supervision, and evaluation lags are all significantly correlated with project outcomes, as are early-warning indicators that flag problematic projects during the implementation stage. They also find that measures of World Bank project task manager quality matter significantly for the ultimate outcome of projects. They discuss the implications of these findings for donor policies aimed at aid effectiveness.
    Keywords: Housing&Human Habitats,Poverty Monitoring&Analysis,Banks&Banking Reform,Economic Theory&Research,Country Strategy&Performance
    Date: 2011–05–01
  2. By: Hermano Rebolledo, Víctor (Departamento de Organización de Empresas y Comercialización e Investigación de Mercados, Facultad de Ciencias Económicas y Empresariales, Universidad de Valladolid); Martín Cruz, Natalia (Departamento de Organización de Empresas y Comercialización e Investigación de Mercados, Facultad de Ciencias Económicas y Empresariales, Universidad de Valladolid)
    Abstract: This paper seeks to answer the question of which international development projects are outsourced from the public bureaucracies when the contractor is a non-profit organization (NGO). The transaction cost economics framework is used to analyze the reasons underlying the outsourcing decision by isolating the transactional characteristics. The make-or-buy decisions made by the public agency in Spain for the international aid delivery projects during five years are analyzed. The results achieved shows that the international aid delivery projects developed as government subsidies present light formulation reports and more relevant contingencies than those developed through an NGO. This fact could make us suspect that the government subsidies are used to developed international aid delivery projects involving higher levels of complexity, uncertainty and asset specificity. Este trabajo trata de responder a la pregunta referente a qué proyectos de cooperación al desarrollo son externalizados por el ente público a través una organización no gubernamental para el desarrollo (ONGD). Se emplea el marco teórico de la teoría de costes de transacción, y en concreto las características transaccionales para analizar las razones que fundamentan la externalización. Las decisiones tomadas por la Agencia española de Cooperación al Desarrollo durante un periodo de cinco años son analizadas. Los resultados obtenidos muestran que los proyectos de cooperación al desarrollo ejecutados como Subvenciones de Estado presentan formulaciones más difusas y contingencias de mayor importancia que aquellos ejecutados mediante subvenciones a ONGD lo cual puede implicar mayores niveles de complejidad, incertidumbre y especificidad en sus activos.
    Keywords: Make-or-buy decision; Transaction cost economics; public outsourcing; nongovernmental organizations. Externalización, Teoría de costes de transacción, Organizaciones no gubernamentales para el desarrollo.
    Date: 2010–06
  3. By: Inés Macho-Stadler; David Pérez-Castrillo; Nicolás Porteiro
    Abstract: We consider a market where firms hire workers to run their projects and such projects differ in profitability. At any period, each firm needs two workers to suc- cessfully run its project: a junior agent, with no specific skills, and a senior worker, whose effort is not verifiable. Senior workers differ in ability and their competence is revealed after they have worked as juniors in the market. We study the length of the contractual relationships between firms and workers in an environment where the matching between firms and workers is the result of market interaction. We show that, despite in a one-firm-one-worker set-up long-term contracts are the op- timal choice for firms, market forces often induce firms to use short-term contracts. Unless the market only consists of firms with very profitable projects, firms oper- ating highly profitable projects offer short-term contracts to ensure the service of high-ability workers and those with less lucrative projects also use short-term contracts to save on the junior workers' wage. Intermediate firms may (or may not) hire workers through long-term contracts.
    JEL: D86 C78
    Date: 2011–05–05
  4. By: Peterson, Stephen (Harvard University)
    Abstract: Little is written about the critical success factors that make or break a project implementing a public financial management reform in Africa. Based on the twelve year experience of Harvard's DSA project which transformed Ethiopia's financial management in the third best on the continent, this paper presents the key factors of the projects success: task, context, patrons, roles, staff and decisions. The task was focused from the start on the basics of financial control (budget and accounts and their budget classification, chart of accounts and financial calendar) and the development of an often forgotten end state in PFM reform--the self-accounting unit. Three features of context supported the project: political (close ties between the US and Ethiopia government established during the civil war), task environment (a hard budget constraint) and, serendipity (a war that ensure one set of cooks in the kitchen and removed the inevitable critique by foreign aid agencies, and the government policy of second stage devolution--which made the focal point of district level decentralization). The third CSF, the projects patrons, stayed the course, met stated commitments and did not meddle. The project performed four roles (go-between in the vacuum of decentralization), decider (making the key decisions on pilots), first responder (providing PFM innovations not specified in the terms of reference) and perhaps most important, the furniture (an object that could be kicked and blamed). The project was able to assemble the array of essential staff: all rounders, managers, technicians, networkers and a closer.
    Date: 2011–03
  5. By: Rajanish Dass
    Abstract: This paper, tries to put the current Unique Identity Project (UID) project of India into a perspective to evaluate the set of issues and concerns, as pointed by various stakeholders and try to understand the degree of criticality of those arguments. In this light, the areas of concerns around the UID project in India are also being pointed out. Given the largest IT project in any government globally, the topic is of immense significance besides being timely and the discussion can provide impetus to a series of research activities in the areas of public policy, Information Systems planning and execution as well as appreciating the risks that get associated with such large initiatives. [WP No. 2011-03-04]. URL: [ ets/workingpaperpdf/5463926942011-03-04. pdf].
    Keywords: public policy, information systems planning, risks, post, biometric collection, countries, Financial Inclusion, UID, Unique identity project, stakeholders, india, IT projects, research activities,
    Date: 2011
  6. By: Taehyun Jung; John P. Walsh
    Abstract: This study examines the factors affecting modes of commercializing patented inventions using a novel dataset based on a survey of U.S. inventors. We find that technological uncertainty and possessing complementary assets raise the propensity for internal commercialization. We find that R&D collaboration with firms in a horizontal relationship is likely to increase the propensity to license the invention. In addition, the paper shows that macro-level environment conditions that affect exchange conditions, such as technology familiarity, influence the effects of capabilities on governance choice.
    Keywords: transaction cost economics; knowledge-based view; collaboration ties; commercialization; innovation; patent
    Date: 2011–04
  7. By: Bruno van Pottelsberghe
    Abstract: This working paper empirically investigates if corporate governance practices affect the resources firms devote to R&D. The authors Florence Honoré, Federico Munari and Bruno van Pottelsberghe found that an executive remuneration system that is linked to the firm�s financial performance has a particularly strong negative impact on R&D. This confirms the hypothesis that incentive mechanisms lead managers to focus on more predictable and easily measurable short-term activities,ultimately hampering the commitment to innovative projects.
    Date: 2011–01
  8. By: Dean Altshuler; Carlo Alberto Magni
    Abstract: The internal rate of return (IRR) is used extensively in the real estate sector, notwithstanding certain nagging deficiencies taught in most business school texts, such as that the IRR may have multiple solutions which cannot be reconciled; or that it may lead to decisions that are not consistent with net present value. Unbeknownst to most practitioners, two of the more serious alleged deficiencies have been refuted in the last decade, seemingly great news for IRR advocates. However, the elimination of these deficiencies exposes a more fundamental criticism, one which is addressed in this article; and it is that the IRR is associated with interim project values that are implied by the IRR equation itself and almost surely differ from the true interim values of the project under consideration. To the extent that these values differ, the IRR result will not be an accurate rate of return. Furthermore, such values implied by IRR will almost surely contradict any estimated project values used for time-weighted rate of return (TWR) purposes. A new metric called AIRR (Average IRR) overcomes these criticisms and produces a correct (dollar-weighted) rate of return for a project. Furthermore, AIRR has none of the problems that IRR has; most importantly, its solution always exists and is unique.
    Date: 2011–04–27
  9. By: Krüger, Philipp; Landier, Augustin; Thesmar, David
    Abstract: We document investment distortions induced by the use of a single discount rate within firms. According to textbook capital budgeting, firms should value any project using a discount rate determined by the risk characteristics of the project. If they use a unique company-wide discount rate, they overinvest (resp. underinvest) in divisions with a market beta higher (resp. lower) than the firm's core industry beta. We directly test this consequence of the WACC fallacy and establish a robust and significant positive relationship between division-level investment and the spread between the division's market beta and the firm's core industry beta. Consistently with bounded rationality theories, this bias is stronger when the measured cost of taking the wrong discount rate is low, for instance, when the division is small. Finally, we measure the value loss due to the WACC fallacy in the context of acquisitions. Bidder abnormal returns are higher in diversifying mergers and acquisitions in which the bidder's beta exceeds that of the target. On average, the present value loss is about 0.7% of the bidder's market equity.
    Keywords: Investment, Behavioral finance, Cost of capital
    JEL: G11 G31 G34
    Date: 2011–02
  10. By: José Carlos Nunes (Escola Superior de Gestão e Tecnologia de Santarém, Instituto Politécnico de Santarém, Santarém, Portugal); Elisabete Félix (CEFAGE-UE, Departamento de Gestão, Universidade de Évora, Évora, Portugal); Cesaltina Pires (CEFAGE-UE, Departamento de Gestão, Universidade de Évora, Évora, Portugal)
    Abstract: This study identifies the importance assigned to the various criteria used by the Portuguese Venture Capitalists (VCs) to evaluate and select early stage venture capital projects. The data was collected through a questionnaire answered by 20 Portuguese VCs. We use descriptive statistics techniques and non-parametric tests to identify the most valued criteria and test differences in the importance assigned to the criteria of several types of VCs and investments. The study reveals that the personality and experience of the entrepreneur and of the management team are the most valued groups of criteria. VCs with a majority of private share capital value more the personality of the entrepreneur and management team than the companies with a majority of public share capital. Additionally, the VCs that did not yet internationalize consider the personality of the entrepreneur and management team and the financial aspects, to be more important than the VCs that have already expanded abroad.
    Keywords: Venture capital; Evaluation criteria; Early-stage investments; Internationalization.
    JEL: G24 G32
    Date: 2011
  11. By: Carías Vega , Dora; Alpízar, Francisco
    Abstract: Choice experiments, a stated preference valuation method, are proposed as a tool to assign monetary values to environmental externalities during the ex-ante stages of environmental impact assessment. This case study looks at the impacts of the Costa Rican Institute of Electricity’s Toro 3 hydroelectric project and its affects on the Recreo Verde tourism center in San Carlos, Costa Rica. Compared to other valuation methods (e.g., travel cost and contingent valuation), choice experiments can create hypothetical but realistic scenarios for consumers and generate restoration alternatives for the affected good. Although they have limitations that must be taken into account in environmental impact assessments, incorporating economic parameters—especially resource constraints and tradeoffs—can substantially enrich the assessment process.
    Keywords: stated-preference, economic valuation, choice experiments, hydropower, tourism, Costa Rica
    JEL: Q26 Q4
    Date: 2011–05–05
  12. By: Auriol, Emmanuelle (TSE, ARQADE and IDEI); Picard, Pierre (CREA, University of Luxembourg and CORE, Université Catholique de Louvain)
    Abstract: In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and …rm managers do not share the same information regarding the operation characteristics of a facility. We show that larger shadow costs of public funds and larger information asymmetries entice governments to choose BOT concessions. This result stems from a trade-o¤ between the governments shadow costs of …nancing the construction and the operation of the facility and the excessive usage price that the consumer may face during the concession period. The incentives to choose BOT concessions increase as a function of ex-ante informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession cost characteristics to public …rms at the termination of the concession.
    Keywords: Public-private-partnership, privatization, adverse selection, regulation, natural monopoly, infrastructure, facilities
    JEL: L43 L51 D83 L33
    Date: 2011–03–25
  13. By: Tirole, Jean (University of Toulouse); Weyl, Glen (Harvard University)
    Abstract: What is the best way to reward innovation? While prizes avoid deadweight loss, intellectual property screens out projects generating low consumer surplus per unit sold. We build a model that formalizes this trade-off and develop tools for solving the resulting multidimensional screening problem. Optimal policy generally calls for some market power but never full monopoly pricing. The appropriate degree of market power is determined by a value-weighted average of the innovation supply elasticity multiplied by the log-variance of innovation quality. This quantifies the value of the materialistic genius long associated with entrepreneurship, opening it to empirical calibration. Our results also apply to the pricing of platforms and public infrastructure.
    Date: 2010–08–15

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