Less Risk, More Effort : Demand Risk Allocation in Incomplete Contracts

This article investigates the allocation of demand risk within an incomplete contract framework. We consider an incomplete contractual relationship between a public authority and a private provider (i.e. a public-private partnership), in which the latter invests in non-verifiable cost-reducing efforts and the former invests in non-verifiable adaptation efforts to respond to changing consumer demand over time. We show that the party that bears the demand risk has fewer hold-up opportunities and that this leads the other contracting party to make more effort. Thus, in our model, bearing less risk can lead to more effort, which we describe as a new example of âeuro~counter-incentivesâeuro?. We further show that when the benefits of adaptation are important, it is socially preferable to design a contract in which the demand risk remains with the private provider, whereas when the benefits of cost-reducing efforts are important, it is socially preferable to place the demand risk on the public authority. We then apply these results to explain two well-known case studies.

Incentives and promotion in wage hierarchies

Most of the large firms organization schemes consist in hierarchical structures of tiers with different wage levels. Traditionally the existence of this kind of organizations has been associated to the separation of productive and managerial or supervision tasks and to differences in the skills of the workers. However, many firms now employ workers with similar skills, and then the hierarchical structure can be related to an incentive scheme to ensure that workers supply effort. The model we present investigates how firm owners should determine the optimal wage distribution in order to maximize profits.

Use of Incentive/Disincentive Contracting to Mitigate Work Zone Traffic Impacts, 2012

Incentive/disincentive clauses (I/D) are designed to award payments to contractors if they complete work ahead of schedule and to deduct payments if they exceed the completion time. A previously unanswered question is, “Did the costs of the actual work zone impacts that were avoided justify the incentives paid?” This report answers that question affirmatively based on an evaluation of 20 I/D projects in Missouri from 2008 to 2011. Road user costs (RUC) were used to quantify work zone impacts and included travel delays, vehicle operating costs, and crash costs. These were computed using work zone traffic conditions for partial-closure projects and detour volumes and routes for full-closure projects. Conditions during construction were compared to after construction. Crash costs were computed using Highway Safety Manual methodology. Safety Performance Functions produced annual crash frequencies that were translated into crash cost savings. In considering an average project, the percentage of RUC savings was around 13% of the total contract amount, or $444,389 of $3,464,620. The net RUC savings produced was around $7.2 million after subtracting the approximately $1.7 million paid in incentives. In other words, for every dollar paid in incentives, approximately 5.3 dollars of RUC savings resulted. I/D provisions were very successful in saving RUC for projects with full-closure, projects in urban areas, and emergency projects. Rural, non-emergency projects successfully saved RUC but not at the same level as other projects. The I/D contracts were also compared to all Missouri Department of Transportation contracts for the same time period. The results show that I/D projects had a higher on-time completion percentage and a higher number of bids per call than average projects. But I/D projects resulted in 4.52% higher deviation from programmed costs and possibly more changes made after the award. A survey of state transportation departments and contractors showed that both agreed to the same issues that affect the success of I/D contracts. Legal analysis suggests that liquidated damages is preferred to disincentives, since enforceability of disincentives may be an issue. Overall, in terms of work zone impact mitigation, I/D contracts are very effective at a relatively low cost.

Uncertainty, electoral incentives and political myopia

We study the determinants of political myopia in a rational model of electoral accountability where the key elements are informational frictions and uncertainty. We build aframework where political ability is ex-ante unknown and policy choices are not perfectlyobservable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians invest too little in costly policies withfuture returns in an attempt to signal high ability and increase their reelection probability.Contrary to the conventional wisdom, uncertainty reduces political myopia and may, undersome conditions, increase social welfare. We use the model to study how political rewardscan be set so as to maximise social welfare and the desirability of imposing a one-term limitto governments. The predictions of our theory are consistent with a number of stylised factsand with a new empirical observation documented in this paper: aggregate uncertainty, measured by economic volatility, is associated to better fiscal discipline in a panel of 20 OECDcountries.

Chronic disease management: a qualitative study investigating the barriers, facilitators and incentives perceived by Swiss healthcare stakeholders.

BACKGROUND: Chronic disease management has been implemented for some time in several countries to tackle the increasing burden of chronic diseases. While Switzerland faces the same challenge, such initiatives have only emerged recently in this country. The aim of this study is to assess their feasibility, in terms of barriers, facilitators and incentives to participation. METHODS: To meet our aim, we used qualitative methods involving the collection of opinions of various healthcare stakeholders, by means of 5 focus groups and 33 individual interviews. All the data were recorded and transcribed verbatim. Thematic analysis was then performed and five levels were determined to categorize the data: political, financial, organisational/ structural, professionals and patients. RESULTS: Our results show that, at each level, stakeholders share common opinions towards the feasibility of chronic disease management in Switzerland. They mainly mention barriers linked to the federalist political organization as well as to financing such programs. They also envision difficulties to motivate both patients and healthcare professionals to participate. Nevertheless, their favourable attitudes towards chronic disease management as well as the fact that they are convinced that Switzerland possesses all the resources (financial, structural and human) to develop such programs constitute important facilitators. The implementation of quality and financial incentives could also foster the participation of the actors. CONCLUSIONS: Even if healthcare stakeholders do not have the same role and interest regarding chronic diseases, they express similar opinions on the development of chronic disease management in Switzerland. Their overall positive attitude shows that it could be further implemented if political, financial and organisational barriers are overcome and if incentives are found to face the scepticism and non-motivation of some stakeholders.

Goal setting and monetary incentives: when large stakes are not enough

The aim of this paper is to test the effectiveness of wage-irrelevant goal setting policies in a laboratory environment. In our design, managers can assign a goal to their workers by setting a certain level of performance on the work task. We establish our theoretical conjectures by developing a model where assigned goals act as reference points to workers’ intrinsic motivation. Consistent with our model, we find that managers set goals which are challenging but attainable for an average-ability worker. Workers respond to these goals by increasing effort, performance and by decreasing on-the-job leisure activities with respect to the no-goal setting baseline. Finally, we study the interaction between goal setting and monetary rewards and find that goal setting is most effective when monetary incentives are strong. These results suggest that goal setting may produce intrinsic motivation and increase workers’ performance beyond what is achieved using solely monetary incentives.

Iowa Department of Public Health: SFY 2015 Annual County Service Contract Listing, 2016

Iowa Department of Public Health SFY 2015 Annual County Service Contract Listing. This publication strives to identify all service contracts administered by the Iowa Department of Public Health during the period of July 1, 2014 through June 30, 2015. Contracts may have been increased or decreased, and contract titles changed during the published period. Contracts listed in this summary are shown in alphabetical order by contractor within the county. Interdepartmental Agreements with state government agencies are at the back of the listing. Each page is divided into eight columns which identify the following: column 1: the county of the contractor; column 2: the contractor; column 3: the contract number; column 4: the contract title; column 5: the contract amount; column 6: the funding source; column 7: the start date of the contract and column 8: the end date of the contract.

Governance by Contract? The impact of the International Finance Corporation's Social Conditionality on Worker Organization and Social Dialogue

This study considers the question of the relationship between private labour regulation and workers' capacity to take collective action through the lens of an empirical study of the International Finance Corporation's (IFC) 'performance standards' system of social and environmental conditionality. The study covered some 150 IFC client businesses in four world regions, drawing on data made public by the IFC as well as the results of a dedicated field survey that gathered information directly from workers, managers and union representatives. The study found that the application of the performance standards system has had remarkably little impact on union membership and social dialogue. In those few cases where change could be causally linked to the standards, the effect depended on the presence of workers' organizations that already had the capacity to take effective action on behalf of their members. The study also uncovered some prima facie evidence of breaches of freedom of association rights occurring with no reaction from IFC. The study concludes that the lack of impact is largely due to the private contractual structure that supposedly guarantees standards compliance.

Public-private sector wage differentials by type of contract: evidence from Spain

The article examines public-private sector wage differentials in Spain using microdata from the Structure of Earnings Survey (Encuesta de Estructura Salarial). When applying various decomposition techniques, we find that it is important to distinguish by gender and type of contract. Our results also highlight the presence of a positive wage premium for public sector workers that can be partially explained by their better endowment of characteristics, in particular by the characteristics of the establishment where they work. The wage premium is greater for female and fixed-term employees and falls across the wage distribution, being negative for more highly skilled workers.

Ownership, Incentives and Hospitals

This article analyzes hospital privatization by comparing costs and quality between different ownership forms. We put the attention on the distinction between public hospitals and private hospitals with public funding. Using information about Spanish hospitals, we have found that private hospitals provide services at a lower cost at expenses of lower quality. We observe that property rights theory is fulfilled at least for the Spanish hospital market. The way that Heath Authorities finance publicly funded hospitals may be responsible for the differences in incentives between public and private centers. We argue that the trade-off between costs and quality could be minimized by designing financing contracts with fixed and variable components.

Contract manufacturing networks structure and supply chain management

The usual objectives that companies have for subcontracting are studied in this thesis. The case company’s objectives for contract manufacturing now and in the future are identified. The main objective of the thesis is to create a focused model for the structure and supply chain management in the contract manufacturing network. This model is made for case company’s certain profit center. The different possibilities and their advantages and disadvantages for the structure and supply chain management are examined trough a theoretical review of literature. The possibilities found are then examined from the case company’s point of view. The case company point of view is established based on the opinions of the case company’s representatives. The outcome of the thesis is that the star shaped structure with supply chain management centralized to case company would be the best choice for the case company to manage the contract manufacture network.

Public-private sector wage differentials by type of contract: evidence from Spain

The article examines public-private sector wage differentials in Spain using microdata from the Structure of Earnings Survey (Encuesta de Estructura Salarial). When applying various decomposition techniques, we find that it is important to distinguish by gender and type of contract. Our results also highlight the presence of a positive wage premium for public sector workers that can be partially explained by their better endowment of characteristics, in particular by the characteristics of the establishment where they work. The wage premium is greater for female and fixed-term employees and falls across the wage distribution, being negative for more highly skilled workers.