price adjustment in long term contracts the case of coal in two recent papers i examined the effects of relationship specific investment on the duration of contracts negotiated between electric utilities and coal suppliers that work demonstrated that when relationshipspecific investment is important for a cost minimizing supply relationship contracts are frequently utilized that specify ex ante the terms and conditions of trade over many future years in this article i examine the characteristics of the price adjustment provisions specified in these long term coal contracts i utilize a sample of about 250 coal contracts to analyze the structure of formal price adjustment provisions in coal contracts in order to determine the factors that affect initial negotiated contract prices and to examine actual transaction price behavior over time there has been much recent theoretical work as well as some related empirical work that has focused on the benefits of long term contracts when relationship specific investments are important 2 there has also been some theoretical work that focuses on the contractual arrangements that may be chosen to mitigate opportunism problems and guard against

offering stock options to gauge managerial talent abstract besides the commonly cited reasons for the use of stock options including motivating employees conserving cash exploiting favorable accounting and tax treatment and retaining managers we demonstrate a complementary benefit of option based compensation options also prove efficient in matching managerial pay to ability options are useful because they force a manager to put his pay on the line if a manager wants to overstate his worth to the firm he must naturally also overstate the firm s worth with him at the helm as a result the firm offers a generous package of stock options in lieu of cash for assertions of high ability since both the likelihood of option exercise and firm value in the event of exercise are tied to managerial ability only a gifted manager takes such a gamble

a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

efficient adaptation in long term contracts take or pay provisions for natural gas to mitigate the inflexibility of long term contracting for natural gas parties will look for terms that minimize the need for costly adjudication while maintaining incentives for appropriate adaptation the authors examine the incident of take or pay provisions in contracts between natural gas producers and pipelines from this perspective they argue that take obligations can be viewed as a mechanism for effecting appropriate incentives for contractual performance and show that efficient breach considerations define an optimal take percentage as a function of characteristics of the transaction these incentives are distorted by regulated price ceilings which cause the adoption of take obligations in excess of optimal levels the findings refute the common perception that take or pay provisions are just an artifact of wellhead price regulation and serve no useful purpose in the absence of regulation 20 references 1 figure 1 table

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

optimal contracts under adverse selection and moral hazard a continuous time approach this article presents a continuous time agency model in the presence of adverse selection and moral hazard with a risk averse agent and a risk neutral principal under the model setup we show that the optimal controls are constant over time and thus the optimal menu consists of contracts that are linear in the final outcome we also show that when a moral hazard problem adds to an adverse selection problem the monotonicity condition well known in the pure adverse selection literature needs to be modified to ensure the incentive compatibility for information revelation the model is applied to a few managerial compensation problems involving managerial project selection and capital budgeting decisions we argue that in the third best world the relationship between the volatility of the outcome and the sensitivity of the contract depends on interactions between the managerial cost and the firm s production functions contrary to conventional wisdom sometimes the higher the volatility the higher the sensitivity of the contract the firm receiving good news sometimes chooses safer projects or invests less than it does with bad news we also examine the effects of the observability of the volatility on corporate investment decisions copyright 2005 oxford university press

non contractible investments and vertical integration in the mexican footwear industry abstract this paper examines patterns of integration among manufacturers and retailers using data from a survey of footwear manufacturers in mexico the property rights framework developed in papers by grossman and hart 1986 j polit econ 94 691 and hart and moore 1990 j polit econ 98 1119 is differentiated from the standard empirical transactions cost framework in the context of this industry the most relevant distinction between the two frameworks is that the property rights framework addresses both the benefits and costs of integration while the transactions cost framework focuses only on variation in the benefits of integration we show that the costs of integration are highest where the retailer s non contractible investment has an important effect on the overall profits from the relationship consistent with the property rights framework the data suggest that integration is less likely in these circumstances

contractionary devaluation in the southern cone the case of chile abstract this paper discusses the effects of a currency devaluation on output employment and the trade balance in a small open economy chile the structure of the foreign trade sector in terms of price elasticities the sectoral differences in relative domestic value added intensities across exports and import competing industries and the degree of wage indexation are the main determinants in our model of the impact of devaluation a simulation carried out with a computable macro model for chile shows a currency devaluation to be contractionary in the short to medium run

expectations the commons and optimal group size abstract this article derives a formula for the optimal number of exploiters of a commons whose output is sold in an imperfectly competitive market and whose exploiters hold nonzero or non nash conjectures we express the optimal number of exploiters in terms of the conjecture the elasticity of input productivity and the price elasticity of market demand consistent conjectures those that agree with reality imply the full tragedy of the commons and zero profits for the exploiters

a simple macro model for a small open economy facing a binding external constraint chile abstract in this paper a keynesian macroeconomic model for a small open economy is used which describes the functioning of the real part of the economy in the short run when facing a dominant external restriction the main conclusions of this paper are 1 in the chilean case a devaluation has a contractionary impact in the short run i e a 10 real devaluation produces a 3 4 drop on the level of output the non fulfilment of the marshall lerner condition accounts for only 30 of the output contraction while the remaining 70 corresponds to the decline in consumption that is induced by the reduction in real wages 2 when the economy has an external deficit the adequate combination of exchange and fiscal policies to restore the balance of payments equilibrium which minimizes the decline of output depends on the magnitude of the devaluation thus an over shooting in the exchange rate together with a contractionary fiscal policy would produce an unnecessarily deflationary impact in the short run 3 the chilean empirical evidence shows that when there is a dominant external constraint the magnitude of the short run trade off between real wages and employment is not very acute the short run elasticity of employment with respect to the real wage is 0 34

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

nonlinear strategies in dynamic duopolistic competition with sticky prices abstract we discuss nonlinear strategies in an infinite horizon duopoly game with sticky prices where firms maximize their discounted sum of profit we construct a stationary feedback equilibrium without guessing value functions and feedback strategies that solve the hamilton jacobi equation for this purpose we study the auxiliary equation that is derived from the hamilton jacobi equation we show that the domain of the state space plays an crucial role in characterizing feedback equilibria and discuss several implications of this observation in particular we find that when the upper bound of the state space is not very high previously unknown feedback equilibria emerge

an empirical investigation of oliver williamson s organization of work oliver williamson argues that the attributes of the employment contract like intermediate transactions in general are essentially driven by the specificity of assets in the case of the organization of work it is the particular attributes of labour that determines the transaction costs of any given governance structure the paper presents a stylized account of the transaction cost model of the efficient organization of work stressing an underlying tension and ambiguity in the transaction cost framework the paper exploits a unique dataset to test for the first time with british data williamson s transaction cost predictions concerning the nature of employment contracts williamson tacitly assumes that asset specificity is exogenous in general however there is evidence in the literature that labour specificity is endogenous to employment contracts the paper endeavours to demonstrate that there is empirical evidence to suggest that specialized labour is indeed endogenous in the transaction cost mode

presidential address antitrust restrictions on single firm strategies this article offers an overview of selected developments in the law and economics of antitrust regulation of single firm strategies the strategy generating the most cases historically is resale price maintenance here the law has moved sharply in both canada and the u s towards more solid economic foundations yet a gap between the law and economics remains the economics of resale price maintenance is reviewed within a framework that is much simpler and more general than the existing literature the law on a second strategy predatory pricing represents in my view a success story for the influence of economic theory in spite of the absence of a single accepted theory of predatory pricing the remaining single firm strategies are concerned largely with the exclusion by a dominant firm of rivals from a market i review with application to cases the two most basic questions concerning exclusionary strategies are exclusionary anticompetitive contracts ever entered into voluntarily by market participants on the other hand is complete or substantial foreclosure of a market through exclusionary strategies necessarily anticompetitive cette allocution presidentielle a l association canadienne d economique presente une vue d ensemble des developpements dans le droit et l economie de la reglementation antitrust sur les strategies d une firme unique la loi sur la strategie qui genere historiquement le plus de cas le maintien du prix de revente a change dramatiquement au canada et aux etats unis et derive vers une politique qui a des assises economiques solides mais il reste un ecart entre le droit et l economie on reexamine l economie du maintien du prix de revente a l aide d un cadre d analyse qui est a la fois plus simple et plus general que ce qui existe dans la litterature specialisee la loi pour ce qui est d une seconde strategie prix d eviction est a mon avis une grande reussite pour la science economique malgre l absence d une seule theorie du prix d eviction generalement acceptee un troisieme ensemble de strategies concerne l exclusion de ses rivaux d un marche par la firme dominante l auteur reexamine avec un recours extensif aux cas les deux questions de base pour ce qui est des strategies d exclusion est ce que les participants sur un marche entrent jamais volontairement dans un arrangement contractuel qui exclut et est anticoncurrentiel d autre part est ce que la saisie complete ou substantielle d un marche par des man uvres d exclusion est necessairement anticoncurrentielle

the commons and the optimal number of firms the problem of the commons is a frequently cited example of market failure in which exploiters pursuit of profits does not lead to the attainment of a social or pareto optimum in particular a free access equilibrium induces an unrestricted number of exploiters or firms to equate the variable input s average product instead of its marginal product to the input s real rental rate hence the rents of the variable input are driven to zero haveman 1973 1 when the number of firms in a commons is unrestricted the scarce factor e g the fishery the hunting ground is not imputed a rent a social optimum can be achieved if a single firm exploits a commons and sells its output in a perfectly competitive market weitzman 1974 the purpose of this note is to derive an expression for the optimal number of firms exploiting a commons when the resulting output is sold in an imperfectly competitive market 2 since demand inelasticity due to monopoly power leads to overconservation while an increase in the number of exploiting firms typically leads to underconservation a finite number of firms for a commons can be found corresponding to a social or pareto optimum in particular the optimum number of firms depends directly on the elasticity of the input productivity and inversely on the price elasticity of market demand

how to deliver foreign aid the case of projects governed by the spanish international agency summary international agencies use two alternative modes of governance to deliver international aid projects under bilateral agreements with recipient governments in house or through incumbent ngos through the lenses of institutional and transaction cost economics this article examines 95 international aid projects delivered in morocco and ecuador by the spanish international agency finding that those projects delivered in house present different features than those projects outsourced through incumbent ngos specifically international aid projects delivered in house involve important investments in specific assets are much more complex and can turn the public agency into a hostage of its own disbursement

sorting effects of performance pay compensation not only provides incentives to an existing manager but also affects the type of manager attracted to the firm this paper examines the dual incentive and sorting effects of performance pay in a simple contracting model of endogenous participation unless the manager is highly risk averse sorting dampens optimal pay performance sensitivity pps because pps beyond a nominal amount transfers unnecessary information rent to the manager this helps explain why empirical estimates of pps are much lower than predictions from models of moral hazard alone the model also predicts that sorting under asymmetric information causes the firm to turn away more candidates than would be efficient pps increases in the cost of hiring the manager and in the manager s outside option but decreases in output risk information risk and managerial risk aversion and the firm becomes more selective in hiring as either the manager s outside option the cost of hiring risk aversion output risk or information risk increases this paper was accepted by mary barth accounting

instabilities of strategic alliances an internal tensions perspective the instabilities of strategic alliances have been examined in the literature through a number of theoretical approaches alliance instabilities refer to major changes or dissolutions of alliances that are unplanned from the perspective of one or more partners although the literature identifies certain characteristics of strategic alliances that may lead to their unplanned dissolution the extent of our understanding of this subject appears to be fragmented and incomplete in this article we propose a comprehensive framework for adequately understanding alliance instabilities based on the notion of internal tensions we suggest that strategic alliances are sites in which conflicting forces develop and which can be viewed as being constituted by three key pairs of competing forces namely cooperation versus competition rigidity versus flexibility and short term versus long term orientation this tensions framework helps us in explaining the intrinsic vulnerability of alliances in terms of a wide range of internal contradictions and enables us to examine in an integrated manner the incidence dynamics and eventual dissipation of the inherent instabilities we discuss the interrelationships among the different internal tensions and their impacts on different types of strategic alliances we also examine the termination of alliances through mergers acquisitions and dissolution finally we suggest ways to empirically test the various ideas and propositions developed here and indicate directions for further research

the british electricity experiment the privatization of the electricity supply industry esi in britain which began 1990 is in itself an unremarkable event much of the esi is privately owned in several european countries and in the united states and the u k privatization program has embraced utilities since 1984 when british telecom was privatized the thing that is remarkable about recent policy toward the industry is the radical nature of the regulatory reform accompanying privatization a vertically integrated administered generation and transmission structure was replaced overnight on march 31 1990 by one that is deintegrated and market based generation and transmission have been separated and there has been an attempt to establish competition in generation a number of countries have been moving gradually in the direction of encouraging competition but nowhere else have such dramatic changes been implemented so quickly

a transaction costs analysis of innovations in the organization of pharmaceutical r d abstract this paper uses transaction costs economics to analyze the increasing importance of vertical disintegration of r d by large pharmaceutical and chemical firms first it discusses three characteristics of the research based pharmaceutical industry then it shows that market failures related to long term joint venture r d contracts between firms and university laboratories are less significant than appears at first and may account for their striking increase over the past fifteen years

mitigating contractual hazards unilateral options and contract length in this article we consider the ways in which the desire for efficient low cost adaptation to change influences the tradeoff between the design and duration of long term contractual relationships we examine the distortions in contract terms occasioned by nonprice competition for natural gas in the presence of wellhead price regulation deviations from optimal contract incentives significantly raise the cost of being bound to long term agreements and shorten the duration of contracts the approach we adopt suggests a method for empirically assessing the efficiency of alternative contracting practices and legal standards

buyer investment export variety and intrafirm trade abstract this paper studies a model of buyer investment and its effect on the variety and vertical structure of international trade a distinction is made between two types of buyer investment flexible and specific which differ in the ability of a buyer to match with a seller the interaction of buyer investment with the entry and pricing incentives of suppliers are analyzed it is shown that i there can be multiple equilibria in the variety of products traded and ii less product variety is associated with more intrafirm trade the possibility of multiple equilibria is consistent with the observation that some similar economies such as taiwan and south korea differ substantially in their export varieties to the u s a cross country empirical analysis confirms the negative correlation between export variety and intrafirm trade

would hotelling kill the electric car in this paper we show that the potential for endogenous technological change in alternative energy sources may alter the behaviour of resource owning firms when technological progress in an alternative energy source can occur through learning by doing resource owners face competing incentives to extract rents from the resource and to prevent expansion of the new technology we show that in such a context it is not necessarily the case that scarcity driven higher traditional energy prices over time will induce alternative energy supply as resources are exhausted rather we show that as we increase the learning potential in the substitute technology lower equilibrium energy prices prevail and there may be increased resource extraction and greenhouse gas emissions we show that the effectiveness and the incidence of emissions reduction policies may be altered by increased potential for technological change our results suggest that treating finite resource rents as endogenous consequences of both technological progress and policy changes will be important for the accurate assessment of climate change policy

the tenuous trade off between risk and incentives empirical work testing for a negative trade off between risk and incentives has not had much success the data suggest a positive relationship between measures of uncertainty and incentives rather than the posited negative trade off i argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees when workers operate in certain settings firms are content to assign tasks to workers and monitor their inputs by contrast when the situation is more uncertain they delegate responsibility to workers but to constrain their discretion base compensation on observed output

oligopsony power asset specificity and hold up evidence from the broiler industry in this article we look for empirical evidence of hold up in broiler industry production contracts by using the cross sectional national survey of broiler growers first we focus on the problem of under investment and hypothesize that the degree of agent s grower s under investment systematically depends on the principal s integrator s market power and the level of asset specificity second we provide an indirect test of hold up by looking at the grower contract payoffs as a function of the frequency of the housing facilities upgrade requests and the principal s market power the results show moderate empirical support for the presence of hold up

on the observational equivalence of managerial contracts under conditions of moral hazard and self selection managerial contracts often tie compensation to the performance of the firm two models of contracting under asymmetric information moral hazard and self selection are used to explain this phenomenon an important direction for research in this area will be to use data on managerial contracts to sharpen our understanding of the settings in which a given informational problem is most important the purpose of this paper is to ask whether this is possible using static models of contracting under asymmetric information to address this question we compare the standard principal agent model presented by grossman and hart 1983 with a plausible self selection model where the firm only wants to hire a manager with a particular level of productivity we call this self selection model a talent search

on perfect rent dissipation if economists are united on anything it is the proposition that monopoly prices reduce economic welfare by preventing the realization of the maximum gains from trade in any market the extent of such distortions to efficiency are often called harberger costs after arnold harberger s 1954 provocative attempt to measure the extent of these losses in the u s economy more recent analysis has revealed that when monopoly power is achieved via regulation at least part of the monopoly rents so gained will not be simple transfers from consumers to producers but will be dissipated by producers rent seeking activity since such activity employs real resources there are additional costs to monopolization beyond the harberger costs as emphasized by gordon tullock 1967 and richard posner 1975 indeed posner and others have argued that if competition for the monopoly rents is perfect all of the expected rents from regulation will be converted to welfare losses while franklin fisher s 1985 comment has qualified this conclusion somewhat the upshot of the debate is that the rent seeking or tullock costs may greatly exceed the harberger costs 1 another recent strand of the analysis concerns the time pattern over which monopoly returns are dissipated by competition to gain and hold the monopoly right robert mccormick et al 1984 emphasize that to the extent such expenditures are sunk they are forever lost and not recoverable by deregulation while conceding the point martin cherkes et al 1986 argue that most rentseeking expenditures are recurring not sunk and therefore large gains from deregulation remain the purpose of this essay is to point out that recurring or sunk even the largest specification of the harberger and tullock costs of regulatory monopolization may fall far short of the actual welfare costs this is because the analysis concentrates on the rent seeking tullock costs and largely ignores the parallel rent defending2 tullock costs a proper assessment of such rent defending tullock costs might more than double the maximum welfare costs of regulation suggested by posner

noncooperative solutions for a differential game model of fishery abstract in this paper a generalization of gordon schaefer s fishery resource model to a duopoly is presented the resulting noncooperative game is solved analytically as well as numerically by using the equilibrium concepts of nash and stackelbewrg it turns out that in both cases the player with the smaller unit costs is able to choose a higher catch rate than his opponent furthermore it is shown that the game is stackelberg dominant in the stackelberg case any information disadvantage in the sense of stackelberg fellowership can be eliminated by a more efficient technology

the seeds of dissolution discrepancy and incoherence in buyer supplier exchange in this research we examine a novel mechanism of interorganizational relationship dissolution incoherence in a partner s behavior we propose that the discrepancy between an exchange partner s opportunistic behavior and the focal firm s expectations may create a state of incoherence and uncertainty and that this effect can be damaging to the exchange even when the partner s behavior is better than expected using nearly 500 longitudinal confidential reports of industrial buyers and sellers we find supportive evidence that 1 the net effect of the discrepancy is initially positive when behavior is better than expected but becomes rapidly negative thereafter and 2 the net effect of the discrepancy is always negative when behavior is worse than expected thus these effects will generally damage the exchange even as the partner tries to improve the relationship this gives insight into why exchange relationships that hit a downward spiral can be difficult if not impossible to salvage we also show that the dysfunctional consequences of discrepancy are mitigated through exchange structures such as the magnitude of dependence on an organizational partner the development phase of the relationship and the presence of bilateral idiosyncratic investments implications for theory and the management of interorganizational relationships are developed

moral hazard and adverse selection the question of financial structure this paper looks at the moral hazard and adverse selection problems confronting an entrepreneur offering securities to an uninformed but competitive financial market the adverse selection aspect of the problem is generated by the unobservable entrepreneur s ability to transform effort into value moral hazard arises because the investment decision is made subsequent to financing we consider the joint use of both debt and equity and characterize the equilibrium relation between capital structure and unobservable attributes it is shown that 1 investment and financing are not separable 2 there is an underinvestment problem for better firms and 3 simultaneous use of both debt and equity can resolve this difficulty we also establish a connection between expected terminal firm value and debt promised payment level and between share retention and standard deviation agency problems in corporate finance originated with the influential papers of jensen and meckling 11 myers 17 ross 21 and leland pyle 14 they show that the market imperfections induced by unobservable actions lack of contracting ability and information asymmetry generally lead to second best outcomes in which the distribution of corporate ownership is achieved only at significant cost these costs take the form of excessive perquisite consumption overinvestment underinvestment and incomplete diversification of personal investment portfolios moral hazard and adverse selection comprise two forms in which agency problems may take shape arrow 1 equates these two terms with hidden action and hidden information respectively moral hazard arises when the action undertaken by the agent is unobservable and has a differential value to the agent as compared to the principal adverse selection problems arise when the agent has more information than the principal the resolution of such difficulties has been explored in a number of contexts with both signals and contingent contracting mechanisms these definitions exclude certain agency problems in the delegation literature for which the preference incongruity results from a lack of precommitment rather than some exogenous feature of the model in corporate finance one would thus identify the jensen meckling paper with moral hazard because perquisites enter the insider s objective differently from outsiders while darrough is from columbia university and stoughton is from the university of california irvine the second author s research was partially supported by grant number 410 83 0786 r 1 from the social sciences and humanities research council of canada this paper was presented at the 1984 meetings of the western finance association in vancouver and at the 1985 european finance association meetings in bern we thank kose john and frans tempelaar for their comments at the meetings

choice of contracts in the british national health service an empirical study following major reforms of the british national health service nhs in 1990 the roles of purchasing and providing health services were separated with the relationship between purchasers and providers governed by contracts using a mixed multinomial logit analysis we show how this policy shift led to a selection of contracts that is consistent with the predictions of a simple model based on contract theory in which the characteristics of the health services being purchased and of the contracting parties influence the choice of contract form the paper thus provides evidence in support of the practical relevance of theory in understanding health care market reform

natural gas contracts in an emerging competitive market natural gas is being viewed by many as the fuel of the 1990s and beyond because of its environmental qualities relatively low cost and significant domestic resource base however in the fall of 1991 a group of electric utility executives met with then deputy secretary of energy henson moore and asserted that an inability to obtain long term gas contracts meant that supplies are unreliable and construction of gas fueled generating stations is being discouraged this study was requested by the deputy secretary to address the issues surrounding long term gas contracts and supply reliability the relationship between supply reliability and contracts is explained in terms of the number of buyers and sellers in a market with the appropriate state regulatory policies utilities can contract for gas and obtain reliable supplies at competitive market prices public utility commissioners are encouraged to permit utilities a free choice in signing gas contracts but to allow only competitive market prices to be reflected in allowable fuel costs

risk aversion performance pay and the principal agent problem this paper calculates numerical solutions to the principal agent problem and compares the results to the stylized facts of ceo compensation the numerical predictions come from parameterizing the models of grossman and hart and of holmstrom and milgrom while the correct incentives for a ceo can greatly enhance a firm s performance providing such incentives need not be expensive for many parameter values ceo compensation need increase only by about 10 for every 1 000 of additional shareholder value for some values the amount is 0 003 cents

implementing supplier codes of conduct in global supply chains process explanations from theoretic and empirical perspectives western buying companies impose supplier codes of conduct scc on their suppliers in developing countries however many suppliers cannot fully comply with scc and some of them even cheat in scc in this research we link contract characteristics price pressure production complexity contract duration to the likelihood of supplier s commitment to scc through a mediating process how the buying companies govern their suppliers our structural equation model analysis shows that the hierarchy relational norms governance is a perfect mediator of contract characteristics effects on the likelihood of supplier s commitment the market governance an insignificant one the managerial implications are provided for successfully implementing scc in global supply chains

when additional resource stocks reduce welfare in the dominant firm model we show that an increase of the fringe s reserves of a nonrenewable resource may lead to a decrease in aggregate discounted social welfare this happens when the difference between the fringe s extraction cost and the dominant firm s is positive and large enough we also show that welfare might decrease if the fringe s marginal extraction cost decreases

managerial expertise private information and pay performance sensitivity this paper characterizes optimal pay performance sensitivities of compensation contracts for managers who have private information about their skills and those skills affect their outside employment opportunities the model presumes that the rate at which a manager s opportunity wage increases in his expertise depends on the nature of that expertise i e whether it is general or firm specific the analysis demonstrates that when managerial expertise is largely firm specific general the optimal pay performance sensitivity is lower higher than its optimal value in a benchmark setting of symmetric information furthermore when managerial skills are largely firm specific general the optimal pay performance sensitivity decreases increases as managerial skills become a more important determinant of firm performance unlike the standard agency theoretic prediction of a negative trade off between risk and pay performance sensitivity this paper identifies plausible circumstances under which risk and incentives are positively associated in addition to providing an explanation for why empirical tests of risk incentive relationships have produced mixed results the analysis generates insights that can be useful in guiding future empirical research

exchange rate management and stabilization policies in developing countries abstract we outline three channels via which a devaluation has a direct contractionaly impact on the aggregate supply side of the economy local currency costs of intermediate imports wage indexing in the presence of food imports and reduced volume of real credit to firms contractionary effects via the supply side are more damaging than krugman taylor effects via aggregate demand since a cut in aggregate supply leads to upward pressure on inflation while a cut in aggregate demand tends to abate inflation upward pressure on inflation may over time threaten the increase in competitiveness a nominal devaluation also intends to achieve we also discuss the implications of a substantial foreign debt we demonstrate that a successful devaluation raises the real in terms of domestic goods debt service burden causing a krugman taylor like contractionary effect on aggregate demand we then analyse the effects of a preannounced slowdown of the rate of depreciation our results of course do not imply that a devaluation should never be considered they do suggest however that a devaluation is likely to be an ineffective tool for demand management since it may cut aggregate supply as much or more in the short run

licensing duration in foreign markets a real options perspective licensing can be considered an initial trial of a foreign market before a firm fully commits to it through other investment modes the length of trial has great importance because licensing duration represents part of the licensing agreement when it is too short the firm may not acquire the necessary experience and knowledge of the foreign market but if it is too long the firm misses optimal expansion timing arguing that licensing can be considered as a european style real option with a fixed holding period we develop and test a model of the determinants of licensing duration in foreign markets empirical results based on a sample of firms in various countries show that uncertainty and threat of competitive pre emption in the foreign market are related to shorter duration of the technology licensing agreements we also find that irreversibility of the impending investment moderates the relationships between uncertainty and duration specifically market and technology uncertainties in the foreign market induce shorter contracts under low levels of irreversibility

optimal governing instrument operation level and enforcement in natural resource regulation the case of the fishery most regulation studies have used industry output or inputs as the control variable s but these are only indirectly controlled by government action through its choice of governing instrument enforcement procedure and penalty structure and the operational level of each a model is developed which demonstrates how profit maximizing firms will react to these control variables taking into account the benefits extra production and costs possible penalties of noncompliance and the ability to avoid detection of noncompliance the optimal operation level for two sets of control variables is derived and discussed

oligopoly extraction of a common property natural resource the importance of the period of commitment in dynamic games the theory of noncooperative dynamic games has provided an extremely powerful framework for studying many of the classic questions in industrial organization for example questions about resource extraction advertising research and development investment in new capacity and barriers to entry where interactions over time among few firms are involved however an important methodological issue arises when economic competition over time is modeled as a dynamic game the issue is the appropriate formulation of the players strategy spaces

entry deterrence and overexploitation of the fishery abstract two stackelberg game models open access and restricted entry of a poaching fishery situation are proposed only the long run noncooperative solution of managing resource stocks is assumed feasible the optimal stock under open access for poachers is shown to be lower than under restricted entry and the latter to be lower than under exclusive ownership deterrence is completely successful under open access but is partially successful only under restricted entry the game models considered are shown to be equivalent to a constrained ownership fishery control problem or its surrogate

why are different services outsourced to different countries the tradability revolution in services has led to a dramatic expansion of offshore outsourcing of services allowing firms to take advantage of lower production costs in foreign countries however production costs alone cannot explain the location determinants of offshore outsourcing of services in this paper we argue that minimizing transaction costs is also an important determinant of the location of offshore outsourcing of services we empirically analyze characteristics of services and characteristics of foreign countries that may impact on transaction costs in an outsourcing relationship and hence determine where services will be outsourced offshore we derive measures of service characteristics routineness complexity and interactiveness based on the tasks required to provide them further we posit that there are interaction effects between service and country characteristics using bureau of economic analysis data on us service outsourcing across 11 types of services to 31 countries between 1992 and 2005 we find that 1 services that are more routine less complex or less interactive are outsourced more to foreign countries 2 services are outsourced more to countries with higher institutional quality and greater cultural proximity 3 non routine complex and interactive services are outsourced relatively more to countries with a better institutional quality

on the existence of cournot equilibrium this paper examines the existence of n firm cournot equilibrium in a market for a single homogeneous commodity it proves that if each firm s marginal revenue declines as the aggregate output of other firms increases which is implied by concave inverse demand then a cournot equilibrium exists without assuming that firms have nondecreasing marginal cost or identical technologies also if the marginal revenue condition fails at a potential optimal point there is a set of firms such that no cournot equilibrium exists the paper also contains an example of nonexistence with two nonidentical firms each with constant returns to scale production