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.

Diversity of Calliphoridae and Sarcophagidae (Diptera, Oestroidea) in continuous forest and gaps at different stages of regeneration in the Urucu oilfield in western Brazilian Amazonia

Diversity of Calliphoridae and Sarcophagidae (Diptera, Oestroidea) in continuous forest and gaps at different stages of regeneration in the Urucu oilfield in western Brazilian Amazonia. The diversity of Calliphoridae and Sarcophagidae in continuous forest and gaps at different stages of regeneration was studied in the Urucu river basin, in Coari, state of Amazonas, Brazil. The flies were collected at 16 sampling points, 12 in gaps at different stages of regeneration (early _ C1, mid- C2 and late successional _ C3) and four in continuous forest _ MT. The diversity of blowflies was similar in the two less regenerated habitats (C1 and C2), and lower than that in the late successional (C3) and continuous forests (MT). By contrast, the diversity of flesh flies was much higher in all three types of gaps (C1, C2 and C3) in comparison with continuous forest (MT). Ordination (NMDS) and similarity (ANOSIM) analyses revealed that the blowflies communities were grouped by habitat type, which affected species composition more than diversity. Analysis of the flesh flies revealed two main groupings, gaps (C1, C2 and C3) and continuous forest (MT), with no evidence of any influence of successional stage on the diversity of the community.

Iowa Department of Transportation Office of Contracts Letting Summary - Fiscal 2008

Report of the letting activity of the Iowa Department of Transportation's Office of Contracts required by Iowa Code Section 307.12(15).

Variability of resting energy expenditure in healthy volunteers during fasting and continuous enteral feeding.

The magnitude of variability in resting energy expenditure (REE) during the day was assessed in nine healthy young subjects under two nutritional conditions: 1) mixed nutrient (53% carbohydrate, 30% fat, 17% protein) enteral feeding at an energy level corresponding to 1.44 REE; and 2) enteral fasting, with only water allowed. In each subject, six 30-min measurements of REE were performed using indirect calorimetry (hood system) at 90-min intervals from 9 AM to 5 PM. The mean REE and respiratory quotient were significantly (p less than .01) greater during feeding than during fasting (1.08 +/- 0.07 [SEM] vs. 1.00 +/- 0.06 kcal/min and 0.874 +/- 0.007 vs. 0.829 +/- 0.008 kcal/min, respectively). Mean postprandial thermogenesis was 4.9 +/- 0.4% of metabolizable energy administered. The intraindividual variability of REE throughout the day, expressed as the coefficient of variation, ranged from 0.7% to 2.0% in the fasting condition and from 1.2% to 4.1% in the feeding condition. There was no significant difference between the REE measured in the morning and that determined in the afternoon.

Insurance with frequent trading

This paper looks at the dynamic management of risk in an economy with discrete time consumption and endowments and continuous trading. I study how agents in such an economy deal with all the risk in the economy and attain their Pareto optimal allocations by trading in a few natural securities: private insurance contracts and a common set of derivatives on the aggregate endowment. The parsimonious nature ofthe implied securities needed for Pareto optimality suggests that insuch contexts complete markets is a very reasonable assumption.

Ignoring information in binary choice with continuous variables: When is less 'more'?

When can a single variable be more accurate in binary choice than multiple sources of information? We derive analytically the probability that a single variable (SV) will correctly predict one of two choices when both criterion and predictor are continuous variables. We further provide analogous derivations for multiple regression (MR) and equal weighting (EW) and specify the conditions under which the models differ in expected predictive ability. Key factors include variability in cue validities, intercorrelation between predictors, and the ratio of predictors to observations in MR. Theory and simulations are used to illustrate the differential effects of these factors. Results directly address why and when one-reason decision making can be more effective than analyses that use more information. We thus provide analytical backing to intriguing empirical results that, to date, have lacked theoretical justification. There are predictable conditions for which one should expect less to be more.

Continuous arterial spin labeling of mouse cerebral blood flow using an actively-detuned two-coil system at 9.4T.

Among numerous magnetic resonance imaging (MRI) techniques, perfusion MRI provides insight into the passage of blood through the brain's vascular network non-invasively. Studying disease models and transgenic mice would intrinsically help understanding the underlying brain functions, cerebrovascular disease and brain disorders. This study evaluates the feasibility of performing continuous arterial spin labeling (CASL) on all cranial arteries for mapping murine cerebral blood flow at 9.4 T. We showed that with an active-detuned two-coil system, a labeling efficiency of 0.82 ± 0.03 was achieved with minimal magnetization transfer residuals in brain. The resulting cerebral blood flow of healthy mouse was 99 ± 26 mL/100g/min, in excellent agreement with other techniques. In conclusion, high magnetic fields deliver high sensitivity and allowing not only CASL but also other MR techniques, i.e. (1)H MRS and diffusion MRI etc, in studying murine brains.

Un nuevo muestreador de huevos de peces pelagicos a bordo del BIC Jose Olaya Balandra: CUFES (Continuous Underway y Fish egg Sampler)

El IMARPE cuenta con un nuevo muestreador de huevos de peces pelágicos, con características diferentes aquéllas de las redes convencionales.

Minimal data requirements for a continuous monitoring of the quality of care using the DRG classification.

The DRG classification provides a useful tool for the evaluation of hospital care. Indicators such as readmissions and mortality rates adjusted for the hospital Casemix could be adopted in Switzerland at the price of minor additions to the hospital discharge record. The additional information required to build patients histories and to identify the deaths occurring after hospital discharge is detailed.

Saturable metabolism of continuous high-dose ifosfamide with mesna and GM-CSF: a pharmacokinetic study in advanced sarcoma patients. Swiss Group for Clinical Cancer Research (SAKK).

BACKGROUND: The aim of this study was to assess the pharmacology, toxicity and activity of high-dose ifosfamide mesna +/- GM-CSF administered by a five-day continuous infusion at a total ifosfamide dose of 12-18 g/m2 in adult patients with advanced sarcomas. PATIENTS AND METHODS: Between January 1991 and October 1992 32 patients with advanced or metastatic sarcoma were entered the study. Twenty-seven patients were pretreated including twenty-three with prior ifosfamide at less than 8 g/m2 total dose/cycle. In 25 patients (27 cycles) extensive pharmacokinetic analyses were performed. RESULTS: The area under the plasma concentration-time curve (AUC) for ifosfamide increased linearly with dose while the AUC's of the metabolites measured in plasma by thin-layer chromatography did not increase with dose, particularly that of the active metabolite isophosphoramide mustard. Furthermore the AUC of the inactive carboxymetabolite did not increase with dose. Interpatient variability of pharmacokinetic parameters was high. Dose-limiting toxicity was myelosuppression at 18 g/m2 total dose with grade 4 neutropenia in five of six patients and grade 4 thrombocytopenia in four of six patients. Therefore the maximum tolerated dose was considered to be 18 g/m2 total dose. There was one CR and eleven PR in twenty-nine evaluable patients (overall response rate 41%). CONCLUSION: Both the activation and inactivation pathways of ifosfamide are non-linear and saturable at high-doses although the pharmacokinetics of the parent drug itself are dose linear. Ifosfamide doses greater than 14-16 g/m2 per cycle appear to result in a relative decrease of the active metabolite isophosphoramide mustard. These data suggest a dose-dependent saturation or even inhibition of ifosfamide metabolism by increasing high dose ifosfamide and suggest the need for further metabolic studies.

Iowa Department of Transportation, Office of Contracts Letting Summary, July 1, 2008 - June 30, 2009

Twelve regularly scheduled lettings and nine emergency/special lettings were held by the Iowa Department of Transportation for construction and maintenance work during the period covered by this report. At these lettings, projects totaling $1,030,584,566 were approved.