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.

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).

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.

The appropriate use of neurostimulation: avoidance and treatment of complications of neurostimulation therapies for the treatment of chronic pain.

INTRODUCTION: The International Neuromodulation Society (INS) has determined that there is a need for guidance regarding safety and risk reduction for implantable neurostimulation devices. The INS convened an international committee of experts in the field to explore the evidence and clinical experience regarding safety, risks, and steps to risk reduction to improve outcomes. METHODS: The Neuromodulation Appropriateness Consensus Committee (NACC) reviewed the world literature in English by searching MEDLINE, PubMed, and Google Scholar to evaluate the evidence for ways to reduce risks of neurostimulation therapies. This evidence, obtained from the relevant literature, and clinical experience obtained from the convened consensus panel were used to make final recommendations on improving safety and reducing risks. RESULTS: The NACC determined that the ability to reduce risk associated with the use of neurostimulation devices is a valuable goal and possible with best practice. The NACC has recommended several practice modifications that will lead to improved care. The NACC also sets out the minimum training standards necessary to become an implanting physician. CONCLUSIONS: The NACC has identified the possibility of improving patient care and safety through practice modification. We recommend that all implanting physicians review this guidance and consider adapting their practice accordingly.

Iowa Department of Transportation, Contracts Accepted, April 4, 2011

Contracts Accepted by Iowa Department of Transportation

Iowa Department of Transportation, Contracts Accepted, March 21, 2011

Contracts Accepted by Iowa Department of Transportation

Iowa Department of Transportation, Contracts Accepted, March 28, 2011

Contracts Accepted by Iowa Department of Transportation

Civil Rights, Iowa Department of Contracts, March 15, 2011, Vol. 1, no. 1

Newsletter produced by the Iowa Department of Contract for Iowa Department of Transportation, on civil rights.

Contracts Accepted, Iowa Department of Transportation, March 28, 2011

Contracts Accepted for letting reports from the Iowa Department of Transportation.