nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2020‒08‒31
three papers chosen by
Arvi Kuura
Tartu Ülikool

  1. A Theory of Social Impact Bonds By Tortorice, Daniel L.; Bloom, David E.; Kirby, Paige; Regan, John
  2. Discounting Damage: Non-Linear Discounting and Default Compensation. Valuation of Non-Replicable Value and Damage By Christian P. Fries
  3. Wage Setting as a Discovery Process - Why local is superior to central even if one is skeptical towards performance based pay By Stern, Charlotta

  1. By: Tortorice, Daniel L. (College of the Holy Cross); Bloom, David E. (Harvard University); Kirby, Paige (Data for Decisions LCC); Regan, John (Data for Decisions LCC)
    Abstract: Social impact bonds (SIBs) are an innovative financing mechanism for public goods. In a SIB, an investor provides capital to a service provider for a social intervention. The investor receives a return based on the outcome of the intervention relative to a predetermined benchmark. We describe the basic structure of a SIB and provide some descriptive statistics for these financial instruments. We then consider a formal model of SIBs and examine their ability to finance positive net present value projects that traditional debt finance cannot. We find that SIBs expand the set of implementable projects if governments are pessimistic (relative to the private sector) about the probability an intervention would succeed or if the government is particularly averse to paying costs associated with a project that does not generate offsetting benefits. As both these features are present in various public programs, we conclude that SIBs are a real innovation in public finance and should be considered for projects when traditional debt finance has been rejected.
    Keywords: fixed income securities, public services, impact investing, social impact bonds
    JEL: G12 H41
    Date: 2020–06
  2. By: Christian P. Fries
    Abstract: In this short note we develop a model for discounting. A focus of the model is the discounting, when discount factors cannot be derived from market products. That is, a risk-neutralizing trading strategy cannot be performed. This is the case, when one is in need of a risk-free (default-free) discounting, but default protection on funding providers is not traded. For this case, we introduce a default compensation factor ($\exp(+\tilde{\lambda} T)$) that describes the present value of a strategy to compensate for default (like buying default protection would do). In a second part, we introduce a model, where the survival probability depends on the required notional. This model is different from the classical modelling of a time-dependent survival probability ($\exp(-\lambda T)$). The model especially allows that large liquidity requirements are instantly more likely do default than small ones. Combined the two approaches build a framework in which discounting (valuation) is non-linear. The framework can lead to the effect that discount-factors for very large liquidity requirements or projects are an increasing function of time.
    Date: 2020–07
  3. By: Stern, Charlotta (The Ratio Institute)
    Abstract: Local wage setting is when companies in their collective agreements with unions formulate local rules for determining wage increase criteria, in contrast to central wage setting where the industry agreement specify the rules for all companies covered. HR-managers should promote local wage practices more than they currently do. I identify reasons behind HR-managers (and unions) skepticism towards local wage practices and go on to argue that in the end a local wage practice will be better organizational-practice because it will develop organization specific knowledge and this will promote discovery and develop organizational integrity. Hence, HR-managers should embrace local wage practices because it is good for the organization, although it means more work and higher demands on the managers themselves. The social outcome of local wage practices is that firm-specific explorations in HR-management schemes is HR-intrapreneurship which in combination with competition is likely to foster inter-organizational learning and stronger firms.
    Keywords: HR professionals; wage setting; performance pay; collective agreements; local knowledge; intrapreneurship
    JEL: J24 J31 J33 J53
    Date: 2020–08–20

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