nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2011‒11‒07
eight papers chosen by
Arvi Kuura
Parnu College - Tartu University

  1. Cost overruns in Swedish transport projects By Lundberg, Mattias; Jenpanitsub, Anchalee
  2. Quantity choice in unit price contract procurements By Mandell, Svante; Brunes, Fredrik
  3. Education andDevelopment Projects in Brazil (1930-2008): A Political EconomyPerspective By Bernardo Stuhlberger Wjuniski
  4. A Theory of Private Research Funding By Friedrici, Karola; Hakenes, Hendrik
  5. Optimal Coexistence of Long-term and Short-term contracts in Labor Markets By Inés Macho-Stadler; David Pérez-Castrillo; Nicolás Porteiro
  6. The impact of the distribution of property rights on inventions on growth: a two-representative-agent model with asymmetric information By He, Qichun
  7. Political drivers of and barriers to Public-Private Partnerships: The role of political involvement By Gawel, Erik
  8. GOVERNANCE RISKS. How to measure them by means of the incremental cash-flow model By Rodolfo Apreda

  1. By: Lundberg, Mattias (CTS); Jenpanitsub, Anchalee (Mass Rapid Transit Authority of Thailand)
    Abstract: Cost overrun of transport projects is one of the most important problems in transport planning. It also makes the result of the cost-benefit analyses uncertain, thus decreasing their usefulness for decision making. In recent years more emphasis has been put on improving cost calculations and reducing cost overruns, in Sweden and internationally. Still cost overruns have not decreased. We find that the average cost overrun in Swedish road projects is similar to other countries, while it is lower than in other countries for rail. Small projects (< 100 million SEK) have much higher cost overruns than large projects and constitute a large share of total overruns. A project type with large overruns, both in absolute and relative terms, is new rail tracks on existing lines. To improve cost estimates in Sweden, the Successive Calculation method has recently been applied. We find that the variance is significantly lower in these than in actual outcomes, and that the difference is surprisingly small between projects in different planning stages. Another method, Reference Class Forecasting, is demonstrated in two case studies. It results in higher required uplifts. An interesting way forward would be to develop risk-based estimating, based on principal component analysis. To do that, a database needs to be collected, which in turn demands better follow-up procedures.
    Keywords: Cost overrun; cost estimates; actual costs; successive calculation; reference class forecasting
    JEL: R40 R42
    Date: 2011–11–02
  2. By: Mandell, Svante (VTI); 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 minomize 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 renogotiations. 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: 2011–11–02
  3. By: Bernardo Stuhlberger Wjuniski
    Date: 2011
  4. By: Friedrici, Karola; Hakenes, Hendrik
    Abstract: Research can be carried out in academia, or in the private sector, or as a mixture, for example as privately funded academic research. We develop a theoretical framework in which private research funding (PRF) transfers information about the value of a research project from the private sector into academia, in an incentive compatible way. PRF dominates neither pure academia nor private research. We derive predictions about the optimal sequence of research designs, and about the optimal duration of a project within different designs. For example, PRF is never optimal if not preceded by pure academical research. We compare our results with stylized facts.
    Keywords: Innovation, Research Funding, Research Finance, R\& D, Academia, University Finance.
    JEL: L33 H52 O31
    Date: 2011–08
  5. By: Inés Macho-Stadler (Department of Economics, Universitat Autònoma de Barcelona); David Pérez-Castrillo (Department of Economics, Universitat Autònoma de Barcelona); Nicolás Porteiro (Department of Economics, Universidad Pablo de Olavide)
    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 successfully 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 optimal 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 operating 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.
    Keywords: Labor contracts, short-term, long-term, matching, incentives.
    JEL: D86 C78
    Date: 2011–11
  6. By: He, Qichun
    Abstract: We study how entrepreneurs and households share the monopolistic profit from inventions would affect growth. The share to the entrepreneur is called entrepreneur's inventive incentive (EII). First, there are two representative agents (a borrowing entrepreneur and a household who provides the financing capital), both making intertemporal savings decisions. Second, the two agents sign credit contracts to deal with asymmetric information. A larger EII elicits more entrepreneurs' effort, increasing the monopolistic profit from innovations (a "bigger cake" effect); it, however, leaves a smaller share of the cake to households. Initially, the former effect dominates, but beyond a point, the latter effect dominates. As the cake becomes bigger, if the creditor's share gets too small, her return (the product of the size of the cake and her share in the cake) may decrease and she would be less willing to save to finance R&D. Therefore, growth is an inverted-U function of EII.
    Keywords: Two Representative Agents; Credit Market Imperfection; Credit Contract; Entrepreneur's Inventive Incentive; Inverted-U
    JEL: O43 O31 O12
    Date: 2011–10–01
  7. By: Gawel, Erik
    Abstract: The application and design of public-private partnerships between the extremes of purely public or purely private task fulfilment in public services is, in practice, subject to political processes. Decisions about PPPs (realisation, arrangement) are taken in the political arena and are therefore not theoretical optimisation exercises. The interests and resources of the actors who participate in the political decision-making process as well as the rules of the political process have a powerful influence on whether, in what areas, and in what form PPPs are realised. The distance between this output and solutions that are theoretically desirable given certain ideal goals (e.g. efficiency) and conditions can be referred to as political bias. So what role does the political process play in the realisation of PPPs, in the actual design of PPPs, and in their performance? Using public choice and institutional economics theory this paper analyses what chances of success PPPs have given the existing decision-making structures and the inherent incentives for participating actors, and in what way political influence is brought to bear in the first place. Furthermore, aspects of political science in this field (legitimacy, democratic control) are considered as well. Using PPPs there might be a trade-off between reduced democratic control, but also reinforced market control. It turns out that political involvement might be both an important driver as well as an obstacle for (efficient) PPPs and that it is likely to decrease efficiency either way. A case study for userfinancing PPPs in the transport sector highlights the problems of political renitency. --
    Keywords: public-private partnership,politics,bureaucracy,public choice,contract theory,agency,tax state,transaction cost,governance,legitimacy,transport infrastructure,user financing
    JEL: D72 D73 D78 H11 H44 H63 H83
    Date: 2011
  8. By: Rodolfo Apreda
    Abstract: Governance risks stem from the own governance of any organization. The paper puts forward an operational viewpoint of those risks, by mapping the most distinctive categories of governance analysis onto time-dependent governance variables. Afterwards, risks conveyed by the latter are measured against incremental cash flows. The procedure allows a joint analysis of the risky positions carried out by governance variables, tracking them down onto their natural drivers, the incremental cash flows related to assets, creditors, managers, stockholders, and the company’s portfolio of non-current financial assets
    Keywords: governance risks, corporate governance, incremental cash flows, governance variables
    JEL: G34 G32
    Date: 2011–11

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