On the valuation and incentive effects of executive cash bonus contracts

Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex-ante, cash bonuses are valued ex-post. This renders the existing valuation models of employee compensation packages theoretically unsatisfactory and, potentially, empirically distortive. In this paper, we propose an option-based framework for ex-ante valuation of cash bonus contracts. After obtaining closed-form expressions for ex-ante values of several frequently used types of bonus contracts, we utilize them to explore the e¤ects that the shape of a bonus contract has on the executive s attitude toward risk-taking. We, also, study pay-performance sensitivity of such contracts. We show that the terms of a bonus contract can dramatically impact both risk-taking behavior as well as pay-performance incentives. Several testable predictions are made, and venues of future research outlined.

Competition and cost overruns. Optimal misspecification of procurement contracts

Most cases of cost overruns in public procurement are related to important changes in the initial project design. This paper deals with the problem of design specification in public procurement and provides a rationale for design misspecification. We propose a model in which the sponsor decides how much to invest in design specification and awards competitively the project to a contractor. After the project has been awarded the sponsor engages in bilateral renegotiation with the contractor, in order to accommodate changes in the initial project s design that new information makes desirable. When procurement takes place in the presence of horizontally differentiated contractors, the design s specification level is seen to affect the resulting degree of competition. The paper highlights this interaction between market competition and design specification and shows that the sponsor s optimal strategy, when facing an imperfectly competitive market supply, is to underinvest in design specification so as to make significant cost overruns likely. Since no such misspecification occurs in a perfectly competitive market, cost overruns are seen to arise as a consequence of lack of competition in the procurement market.

Optimal contracts, adverse selection and social preferences: An experiment

It has long been standard in agency theory to search for incentive-compatible mechanisms on the assumption that people care only about their own material wealth. However, this assumption is clearly refuted by numerous experiments, and we feel that it may be useful to consider nonpecuniary utility in mechanism design and contract theory. Accordingly, we devise an experiment to explore optimal contracts in an adverse-selection context. A principal proposes one of three contract menus, each of which offers a choice of two incentive-compatible contracts, to two agents whose types are unknown to the principal. The agents know the set of possible menus, and choose to either accept one of the two contracts offered in the proposed menu or to reject the menu altogether; a rejection by either agent leads to lower (and equal) reservation payoffs for all parties. While all three possible menus favor the principal, they do so to varying degrees. We observe numerous rejections of the more lopsided menus, and approach an equilibrium where one of the more equitable contract menus (which one depends on the reservation payoffs) is proposed and agents accept a contract, selecting actions according to their types. Behavior is largely consistent with all recent models of social preferences, strongly suggesting there is value in considering nonpecuniary utility in agency theory.

Wild bids. Gambling for resurrection in procurement contracts

This paper analyzes the problem of abnormally low tenders in theprocurement process. Limited liability causes firms in a bad financialsituation to bid more aggressively than good firms in the procurementauction. Therefore, it is more likely that the winning firm is a firm infinancial difficulties with a high risk of bankruptcy. The paper analyzesthe different regulatory practices to face this problem with a specialemphasis on surety bonds used e.g. in the US. We characterize the optimalsurety bond and show that it does not coincide with the current USregulation. In particular we show that under a natural assumption the USregulation is too expensive and provides overinsurance to the problem ofabnormally low tenders.

Moral hazard and non-exclusive contracts

This paper studies equilibria for economies characterized by moral hazard(hidden action), in which the set of contracts marketed in equilibrium isdetermined by the interaction of financial intermediaries.The crucial aspect of the environment that we study is thatintermediaries are restricted to trade non-exclusive contracts: theagents' contractual relationships with competing intermediaries cannot bemonitored (or are not contractible upon). We fully characterize equilibrium allocations and contracts. In thisset-up equilibrium allocations are clearly incentive constrainedinefficient. A robust property of equilibria with non-exclusivity isthat the contracts issued in equilibrium do not implement the optimalaction. Moreover we prove that, whenever equilibrium contracts doimplement the optimal action, intermediaries make positive profits andequilibrium allocations are third best inefficient (where the definitionof third best efficiency accounts for constraints which capture thenon-exclusivity of contracts).

Financing constraints and fixed-term employment contracts

This paper studies the interactions between financing constraints and theemployment decisions of firms when both fixed-term and permanent employmentcontracts are available. We first develop a dynamic model that shows theeffects of financing constraints and firing costs on employment decisions. Oncecalibrated, the model shows that financially constrained firms tend to use moreintensely fixed term workers, and to make them absorb a larger fraction of thetotal employment volatility than financially unconstrained firms do. We testand confirm the predictions of the model on a unique panel data of Italian manufacturingfirms with detailed information about the type of workers employedby the firms and about firm financing constraints.

A burst of segmental duplications in the genome of the African great ape ancestor

It is generally accepted that the extent of phenotypic change between human and great apes is dissonant with the rate of molecular change. Between these two groups, proteins are virtually identical, cytogenetically there are few rearrangements that distinguish ape-human chromosomes, and rates of single-base-pair change and retrotransposon activity have slowed particularly within hominid lineages when compared to rodents or monkeys. Studies of gene family evolution indicate that gene loss and gain are enriched within the primate lineage. Here, we perform a systematic analysis of duplication content of four primate genomes (macaque, orang-utan, chimpanzee and human) in an effort to understand the pattern and rates of genomic duplication during hominid evolution. We find that the ancestral branch leading to human and African great apes shows the most significant increase in duplication activity both in terms of base pairs and in terms of events. This duplication acceleration within the ancestral species is significant when compared to lineage-specific rate estimates even after accounting for copy-number polymorphism and homoplasy. We discover striking examples of recurrent and independent gene-containing duplications within the gorilla and chimpanzee that are absent in the human lineage. Our results suggest that the evolutionary properties of copy-number mutation differ significantly from other forms of genetic mutation and, in contrast to the hominid slowdown of single-base-pair mutations, there has been a genomic burst of duplication activity at this period during human evolution.

Phytolith and spherulite studies of herbivores dung from the African Savannah as a tool for palaeocological reconstruction.

Los restos fecales están compuestos mayoritariamente por materia orgánica, la cual se degrada con el tiempo despareciendo finalmente del registro arqueológico. Sin embargo, estos restos fecales también contienen ciertos elementos resistentes al paso del tiempo y a los efectos postdeposicionales. Las esferulitas son cristales de carbonato cálcico formadas en los intestinos de ciertos animales herbívoros, principalmente rumiantes y que posteriormente son depositados en los restos fecales. Los fitolitos de sílice, aunque se forman en las plantas, son también comúnmente identificados en los restos fecales de animales herbívoros. Su número y morfología dependerá de la dieta vegetal de estos animales. El estudio que aquí se presenta se centra en el análisis microscópico de ambos elementos, fitolitos y esferulitas, identificados en restos fecales, de varios animales herbívoros, recolectados durante la estación seca en la Garganta de Olduvai en Tanzania. Los fitolitos y las esferulitas fueron identificados y analizados siguiendo un método morfológico y cuantitativo. Los fitolitos fueron luego comparados con una colección de referencia de plantas modernas de la misma zona geográfica con el propósito de estudiar la dieta de cada uno de los animales analizados. Finalmente los resultados fueron relacionados con los obtenidos del estudio de esferulitas, con el propósito de analizar la relación entre morfología y número de fitolitos y morfología y número de esferulitas para cada uno de los restos fecales analizados. El objetivo de este trabajo consiste en evaluar la utilidad de combinar ambas técnicas para identificar restos fecales en el registro arqueológico y, consecuentemente, responder a cuestiones relacionadas con el animal productor de estos restos, su dieta y movimientos migratorios y, paralelamente, la paleovegetación y el paleopaisaje en una región determinada.

Domicola lithodesi n.gen n.sp. (Amphipoda: Calliopiidae), inhabitant of thepleonal cavity of a South African lithodid crab

Domicola lithodesi, a new genus and species of gammaridean amphipod is described. It is placed in the family Calliopiidae. Two specimens, a male and a preparatory female, were collected in August 1990 from the pleonal cavity of the lithodid crab Lithodes ferox (Filhol, 1885), an anomuran crab caught at 300 m depth from off Namibia. The more relevant characters are: anophtalmous; body smooth, gammarid-like, male smaller than female, urosomite 1 with a prepeduncular spine; telson broad, entire, unlobed and unarmed; short rostrum; accessory flagellum scale-like, calceoli absent; lower lip without inner lobes; coxa 4 posteriorly excavated; gnathopods basic, subequal, with numerous palmar spines; dactyls on P3-7 with specialized adhesive organs; coxal gill 7 present; uropods eusirid type.

Cytotaxonomy of North African species of Delphinium L. sect. Delphinium (Ranunculaceae).

S'han estudiat els nombres cromosómics i l'estructura dels cariotipus de 15 poblacions nordafricanes de Delphinium L. sect. Delphinium. Delphinium balansae Boiss. & Reuter, amb cariotipus mes simétric, apareix com a possible ancestre perenne de la resta d'espécies annuals amb cariotipus mes asimétric i mes curt. Es proposa una reorganització taxonómica de la secció, d'on es descriuen dues series noves (ser. Macropeiala ser. nova i ser. Balansae ser. nova.) i es proposen dues combinacions noves (D. nanum subsp. alboliliaceum i D. nanum subsp. elongatum).

Growth, selection and appropriate contracts

We study a dynamic model where growth requires both long-term investmentand the selection of talented managers. When ability is not ex-ante observable and contracts are incomplete, managerial selection imposes a cost, as managers facing the risk ofbeing replaced choose a sub-optimally low level of long-term investment. This generates atrade-off between selection and investment that has implications for the choice of contractualrelationships and institutions. Our analysis shows that rigid long-term contracts sacrificingmanagerial selection may prevail at early stages of economic development and when heterogeneity in ability is low. As the economy grows, however, knowledge accumulation increasesthe return to talent and makes it optimal to adopt flexible contractual relationships, wheremanagerial selection is implemented even at the cost of lower investment. Measures of investor protection aimed at limiting the bargaining power of managers improve selection undershort-term contract. Given that knowledge accumulation raises the value of selection, theoptimal level of investor protection increases with development.

Diet-related buccal dental microwear patterns in central african pygmy foragers and bantu-speaking farmer and pastoralist populations.

Pygmy hunter-gatherers from Central Africa have shared a network of socioeconomic interactions with non-Pygmy Bantu speakers since agropastoral lifestyle spread across sub-Saharan Africa. Ethnographic studies have reported that their diets differ in consumption of both animal proteins and starch grains. Hunted meat and gathered plant foods, especially underground storage organs (USOs), are dietary staples for pygmies. However, scarce information exists about forager-farmer interaction and the agricultural products used by pygmies. Since the effects of dietary preferences on teeth in modern and past pygmies remain unknown, we explored dietary history through quantitative analysis of buccal microwear on cheek teeth in well-documented Baka pygmies. We then determined if microwear patterns differ among other Pygmy groups (Aka, Mbuti, and Babongo) and between Bantu-speaking farmer and pastoralist populations from past centuries. The buccal dental microwear patterns of Pygmy hunter-gatherers and non-Pygmy Bantu pastoralists show lower scratch densities, indicative of diets more intensively based on nonabrasive foodstuffs, compared with Bantu farmers, who consume larger amounts of grit from stoneground foods. The Baka pygmies showed microwear patterns similar to those of ancient Aka and Mbuti, suggesting that the mechanical properties of their preferred diets have not significantly changed through time. In contrast, Babongo pygmies showed scratch densities and lengths similar to those of the farmers, consistent with sociocultural contacts and genetic factors. Our findings support that buccal microwear patterns predict dietary habits independent of ecological conditions and reflect the abrasive properties of preferred or fallback foods such as USOs, which may have contributed to the dietary specializations of ancient human populations.

North African populations carry the signature of admixture with Neandertals

One of the main findings derived from the analysis of the Neandertal genome was the evidence for admixture between Neandertals and non-African modern humans. An alternative scenario is that the ancestral population of non-Africans was closer to Neandertals than to Africans because of ancient population substructure. Thus, the study of North African populations is crucial for testing both hypotheses. We analyzed a total of 780,000 SNPs in 125 individuals representing seven different North African locations and searched for their ancestral/derived state in comparison to different human populations and Neandertals. We found that North African populations have a significant excess of derived alleles shared with Neandertals, when compared to sub-Saharan Africans. This excess is similar to that found in non-African humans, a fact that can be interpreted as a sign of Neandertal admixture. Furthermore, the Neandertal's genetic signal is higher in populations with a local, pre-Neolithic North African ancestry. Therefore, the detected ancient admixture is not due to recent Near Eastern or European migrations. Sub-Saharan populations are the only ones not affected by the admixture event with Neandertals.

Regulating Concessions of Toll Motorways, An Empirical Study on Fixed vs. Variable Term Contracts

Recent theoretical developments on concession contracts for long term infrastructure projects under uncertain demand show the benefits of allowing for flexible term contracts rather than fixing a rigid term. This study presents a simulation to compare both alternatives by using real data from the oldest Spanish toll motorway. For this purpose, we analyze how well the flexible term would have performed instead of the fixed length actually established. Our results show a huge reduction of the term of concession that would have dramatically decreased the firm’s benefits and the user’s overpayment due to the internalization of an unexpected traffic increase.