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on Project, Program and Portfolio Management |
| By: | Felipe Saffie (University of Maryland); Sina Ates (Federal Reserve Board) |
| Abstract: | In the classical literature of innovation-based endogenous growth, the engine of long-run economic growth is firm entry. Nevertheless, when projects are heterogeneous, and good ideas are scarce, a mass-composition trade-off emerges in this link: larger cohorts have lower average quality. As one of the roles of the financial system is to screen the quality of projects, the ability of financial intermediaries to detect promising projects shapes the strength of this trade-off. We build a general equilibrium endogenous growth model with project heterogeneity and financial screening to study this relationship. We use two quantitative experiments to illustrate the relevance of our analytic results. First, we show that accounting for heterogeneity and selection allows the model to conciliate two well-known and apparently contradictory effects of corporate taxation. Corporate taxation has a strong detrimental effect on firm entry while affecting the long-run growth only mildly. A second illustration studies the effects of financial development on growth. This experiment shows that size-based measures of financial development (e.g. domestic credit over GDP) are not good proxies for the ability of the financial system to select the most promising projects. Finally, we propose a novel firm-level measure to assess the accuracy of financial selection across countries. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1486&r=ppm |
| By: | Raymond Deneckere (University of Wisconsin-Madison [Madison]); André De Palma (CES, ENS Cachan, CNRS, Universite Paris-Saclay, 94235 Cachan, France); Luc Leruth (University of Liege, IMF Office in Europe - EUO) |
| Abstract: | We introduce risk aversion in a mixed moral hazard/adverse selection model. Under plausible assumptions, the effort level of the firm is distorted downward from the first best level of effort for both agent types. Thus, the traditional result of no distortion on the top does not hold with risk aversion. We also show that the effort level of the low-cost type may be distorted more than that of the high cost type. With an observable cost shock, an increase in exogenous risk may increase the effort level of the efficient firm and lower the expected cost of the project. |
| Keywords: | Incentives,Contract Theory,Risk-Sharing., Regulation |
| Date: | 2016–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01393213&r=ppm |
| By: | Yaping Shan (School of Economics, University of Adelaide) |
| Abstract: | We study the agency problem between a firm and its research employees under several scenarios characterized by different R&D unit setups. In a multiagent dynamic contracting setting, we describe the precise pattern of the optimal contract. We illustrate that the optimal incentive regime is a function of how agents' efforts interact with one another; relative performance evaluation is used when their efforts are substitutes whereas joint performance evaluation is used when their efforts are complements. The optimal contract pattern provides a theoretical justification for the compensation policies used by firms that rely on R&D. |
| Keywords: | Dynamic Contract, Repeated Moral Hazard, Multiagent Incentive, R&D, Employee Compensation |
| JEL: | D23 D82 D86 J33 L22 O32 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2016-14&r=ppm |
| By: | Ajay Gajanan Bhave; Declan Conway; Suraje Dessai; David A. Stainforth |
| Abstract: | Climate change adaptation is unavoidable, particularly in developing countries where the adaptation deficit is often larger than in developed countries. Robust Decision Making (RDM) approaches are considered useful for supporting adaptation decision making, yet case study applications in developing countries are rare. This review paper examines the potential to expand the geographical and sectoral foci of RDM as part of the repertoire of approaches to support adaptation. We review adaptation decision problems hitherto relatively unexplored, for which RDM approaches may have value. We discuss the strengths and weaknesses of different approaches, suggest potential sectors for application and comment on future directions. We identify that data requirements, lack of examples of RDM in actual decision-making, limited applicability for surprise events, and resource constraints are likely to constrain successful application of RDM approaches in developing countries. We discuss opportunities for RDM approaches to address decision problems associated with urban socio-environmental and water-energy-food nexus issues, forest resources management, disaster risk management and conservation management issues. We examine potential entry points for RDM approaches through Environmental Impact Assessments and Strategic Environmental Assessments, which are relatively well established in decision making processes in many developing countries. We conclude that despite some barriers, and with modification, RDM approaches show potential for wider application in developing country contexts. |
| Keywords: | Adaptation decision making; Uncertainty; Robust decision making approaches; Developing countries; Barriers; opportunities and entry points |
| JEL: | J50 G32 |
| Date: | 2016–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:68318&r=ppm |