a profile of new venture success and failure in an emerging industry abstract this study examined three types of factors 1 the characteristics of the lead entrepreneur 2 startup processes undertaken during the founding of the firm and 3 firm behaviors after start up including management practices and strategic behaviors associated with new venture success and failure the research involved a field study of 26 small young firms 13 successful and 13 less successful or failed each engaged in the distribution of fresh juices in eight metropolitan centers about 30 of the total market in the united states both quantitative and qualitative data were collected through field work at each firm location a statistical analysis of data collected in a structured questionnaire was the primary method for testing the factors case studies of all of the firms were developed to provide qualitative support for the quantitative findings of the study results from these analyses indicated significant differences between successful and unsuccessful firms in all three categories lead entrepreneurs in successful firms were more likely to have been raised by entrepreneurial parents have had a broader business and more prior startup experience and believed they had less control of their success in business than unsuccessful entrepreneurs successful entrepreneurs seek to reduce risk in their businesses they work long hours have a personal investment in the firm and are good communicators successful firms were those initiated with ambitious goals lead entrepreneurs had a clear broad business idea which provided the adaptive torque required to overcome adversity confrontation and often a troubled financial condition effective startup or purchase required broad planning efforts that considered all aspects of the industry and firm successful firms spent more time planning 237 hours than unsuccessful firms 85 hours the use of outside professionals and advisors for help in solving specific problems during startup was important for success as well as the advice and information provided by other industry participants particularly customers and suppliers most ventures did not have written business plans nearly all purchased firms failed buyers of competitively troubled firms were negatively displaced generally unemployed managers who lacked broad management experience and while often well educated had no prior experience in purchasing a business successful firms were found to be more flexible participative and adaptive organizations these firms had employees who could perform the work duties of others and were likely to be managed in a way that provided these workers with the flexibility to modify their jobs to adapt to changing industry and organizational conditions lead entrepreneurs of successful firms were likely to spend more time communicating with partners customers suppliers and employees than the lead entrepreneurs of unsuccessful firms successful firms sought to become larger firms and embarked upon sales to broad sectors of the market successful firms achieved high market shares with market shares came higher financial returns less successful firms were restricted to narrow market sectors consisting of smaller customers and those more difficult to service while customer service remained an important concern the commodity nature of fresh juices failed to support differentiation and the narrowly focused firm was typified by high product costs and unprofitable operations

renegotiation of concession contracts in latin america the authors construct a regulation model in which renegotiation occurs due to the imperfect enforcement of concession contracts this enables the authors to provide theoretical predictions for the impact on the probability of renegotiation of a concession regulatory institutions institutional features economic shocks and the characteristics of the concession contracts then they use a data set of nearly 1 000 concessions awarded in latin america and the caribbean countries from 1989 to 2000 covering the sectors of telecommunications energy transport and water to test these predictions finally the authors derive some policy implications of their theoretical and empirical work

contours of development abstract new ventures seem to suffer more difficulties and business failures than do established firms also there is a pattern to the mortality with most newly founded businesses lasting only a few years explanations of high failure rates in new ventures have often centered on poor management or have postulated that firms chose inappropriate strategies for their markets and economic environments the present article conceives of new venture mortality as similar in nature to patterns of development that we observe for instance in human embryos or in the formation of new species that is development is an inherently hazardous process some of the specific hazards of development are 1 1 generic entry barriers it is generally not possible for a new firm or product to successfully enter an already crowded stable market where competitors are strong it is more feasible instead to enter a new or growing market or to enter with a substitute product that is clearly superior to those existing or to exploit an unnoticed market opening or to develop competitive strengths secretly without overtly challenging others in the industry 2 2 density of developmental hurdles any new entity must clear a sequence of important hurdles on its way to maturity such as establishing a well ordered office a functional sales channel etc failure at any one hurdle is potentially fatal and a mathematical analysis shows that the likelihood of passing even 10 hurdles in a row is about one in three the earliest hurdles tend to be the most difficult and to crowd more densely than later hurdles particularly troublesome are phase changes where a company first starts business or becomes one thing rather than another within a short period of time 3 3 amplification of maturational error any complex system that grows rapidly and is unable to predict the future perfectly is going to accumulate structural errors that become very difficult to remedy this is a natural and inevitable developmental process as the system grows in complexity and the flaw itself becomes a pillar of the system if an imitator or competitor arrives soon afterward and spots the error he or she will easily be able to retool and redesign a better system whereas the first firm is stuck with old habits tools dies and production methods 4 4 sequence and control in development every embryonic organism has a design template outlined in its dna that is carefully followed both the developing fetus itself and the mother have monitoring and control mechanisms that trigger an abortion if the development process goes awry new ventures lack such mechanisms they are more susceptible to developmental deviance likely to differ from the model successful corporation of their type 5 5 smallness and the asymmetry of luck small things are more subject to the whims of fate than big things amount of resources is the key because new ventures typically start off with scarce resources a bad bounce can sink the company and the probability of at least one such bad bounce is high 6 6 costs of organizing like all of the larger brained mammals a new company such as a medical supply firm must learn through experience much of what it means to be mature costs associated with learning arrive just when the firm is most vulnerable and distracted by other challenges in one sense the message of this article is good news in that managers of failed enterprises need not assume all the blame after all if most new businesses do poorly then failure is the average or typical case and it makes little sense to say that the average manager is poor the bad news is that if our perspective is correct managers of new ventures have less scope to influence the success of their enterprises than is commonly believed the managerial recommendations that emerge are that new ventures are more likely to succeed to the extent that they have sponsorship or capital have managers with a range of experience in previous ventures are given extra assistance of shelter or can ensure a high probability of passing all of the hurdles faced by a new venture

wage employment contracts this paper studies the efficient agreements about the dependence of workers earnings on employment when the employment level is controlled by firms the firms superior information about profitability conditions is responsible for this form of contract governance under plausible assumptions such agreements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk it is shown that if leisure is a normal good and firms are risk neutral employment is always above the efficient level such a one period implicit contracting model cannot therefore be used to explain unemployment as a rational byproduct of risk sharing between workers and a risk neutral firm under conditions of asymmetric information

the cost of contract renegotiation evidence from the local public sector the renegotiation of regulatory contracts is known to prevent regulators from achieving the full commitment efficient outcome in dynamic contexts however assessing the cost of such renegotiation remains an open issue from an empirical viewpoint to address this question we fit a structural principal agent model with renegotiation on a set of urban transport service contracts the model captures two important features of the industry first only two types of contracts are used in practice fixed price and cost plus second subsidies increase over time we compare a scenario with renegotiation and a hypothetical situation with full commitment we conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators

name your own price at priceline com strategic bidding and lockout periods a buyer suggests prices to n sellers in a time period and buys from the seller who accepts the bid first the number of bidding rounds is determined by how frequently the buyer can make an offer we show that with no limit on the frequency and without discounting the price path is either kept flat initially with large jumps at the end or increasing steadily over time which class of path occurs in equilibrium depends on the buyer s trade off between committing to a price ceiling versus finely screening the sellers costs with discounting limiting the number of rounds mitigates the delay caused by the reluctance to raise bids in the first class of equilibrium and therefore can benefit the buyer this result suggests why in reality bargaining parties often take measures to make their offers rigid and consequently force themselves to make fewer offers copyright oxford university press

entrepreneurs perceived chances for success abstract entrepreneurs involved in planning or starting firms must engage in a continuing process of appraising prospects for success these assessments presumably bear upon the preparations they make as well as at some later point whether they decide to make major changes or even to discontinue the business in this study data from 2994 entrepreneurs who had recently become business owners were analyzed to determine their perceived changes of success although previous evidence on business survival led to the hypothesis that the entrepreneurs would only be cautiously optimistic this was not the case they perceived their prospects as very favorable with 81 seeing odds of 7 out of 10 or better and a remarkable 33 seeing odds of success of 10 out of 10 in considering the prospects for other businesses like their own they perceived odds which were significantly lower but still moderately favorable based upon previous research on factors associated with new business success it was hypothesized that those who were more likely to succeed based upon their personal backgrounds and the nature of their new firms would be more optimistic however this was not the case those who were poorly prepared were just as optimistic as those who were well prepared at this point shortly after having become business owners the assessment by entrepreneurs of their own likelihood of success was dramatically detached from past macro statistics from perceived prospects for peer businesses and from characteristics typically associated with higher performing new firms the psychological literature on post decisional bolstering suggests that decision makers in many settings tend to bolster or exaggerate the attractiveness of an option after it has been chosen this coupled with the tendency of entrepreneurs to believe that they can control their own destinies implies that the extreme optimism observed here is probably a typical occurrence for entrepreneurs the findings suggest that it is probably natural to experience feelings of entrepreneurial euphoria when first becoming a business owner with the available evidence it is difficult to judge whether this leads to inadequate preparations or an inability to diagnose problems and make adjustments after the business is started this extreme optimism probably does contribute to the heavy personal commitments observed here in which the median entrepreneur devoted more than 60 hours per week to the business the entrepreneur would seem well advised to form relationships with outsiders such as board members and professional advisors who can be objective and detached in diagnosing problems and assessing objectively the prospects for the business in its current form

a theory of contracts with limited enforcement we present a theory of contracts under costly enforcement in the context of a dynamic relationship between an uninformed buyer and a seller who is privately informed on his persistent cost at the outset public enforcement relies on remedies for breach private enforcement comes from severing relationships we first characterize aggregate enforcement constraints ensuring that trading partners do not breach contracts unduly whether a long term contract is enforceable does not depend on the distribution of penalties for breach between the buyer and the seller while under complete information the optimal contract would remain stationary non stationarity might arise under asymmetric information enforcement constraints are time dependent and easier to satisfy as time passes indeed a high cost seller may be tempted to trade high volumes at high prices at the beginning of the relationship before breaching the contract later on yet such take the money and run strategy becomes less attractive as time passes and can be prevented with backloaded payments the optimal contract thus goes through two different phases first quantities and prices increase at the inception of the relationship later on the contract looks more stationary the public and private sides of enforcement plays different roles in determining the length of the earlier phase of contracting long run screening distortions encapsulate the quality of enforcement offering de facto a link between the quality of the legal system and contractual performances

dynamic contracting under adverse selection and renegotiation abstract we study the effects of renegotiation in an infinitely repeated screening model with long term contracts we propose a simple and tractable recursive formulation to study equilibria in which the monopolist s profit is maximized after every history we show that the monopolist sequentially screens high type consumers and characterize second degree price discrimination policies the monopolist s ability to extract rent from high type consumers by distorting the allocation of low type consumers vanishes as all parties become more patient as a result all distortions disappear and the allocation becomes efficient

renegotiation of concession contracts in latin america evidence from the water and transport sectors abstract high rates of contract renegotiation have raised serious questions about the viability of the concession model to attract private participation in infrastructure in developing countries after extending in reduced form a standard regulation model in which renegotiation occurs due to the imperfect enforcement of concession contracts we use a unique data set of 307 concessions awarded in latin america from 1989 to 2000 covering the sectors of transport and water to analyze the determinants of this high incidence of renegotiations of infrastructure contracts we look in details at the impact on the probability of renegotiation of a concession of regulatory institutions institutional features economic shocks and of the characteristics of the concession contracts themselves we then derive some policy implications of our work

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

concessions of infrastructure in latin america government led renegotiation this paper analyzes government led renegotiations in infrastructure concession contracts in latin america based on the same sample used in guasch laffont and straub 2003 to examine firm led renegotiations after extending the theoretical framework to a multiple period context in which both pareto improving and rent shifting renegotiations at the initiative of the government can occur we develop an original instrumental variable strategy to address the issue of contract endogeneity and derive empirical results while some of the main insights concerning the importance of having a regulator in place when awarding concessions and the fragility of price cap regulatory schemes are unchanged significant differences arise with respect to the effect of investment and financing as well as the corruption variables we provide evidence that a good regulatory framework is especially important in contexts with weak governance and political opportunism copyright 2007 john wiley sons ltd

contracting with imperfect commitment and noisy communication abstract this paper provides new analytical tools for studying principal agent problems with adverse selection and limited commitment by allowing the principal to use general communication devices we overcome the literature s common but overly restrictive focus on one shot direct communication in addition general communication devices solve two fundamental problems of contracting with imperfect commitment first they allow us to identify the local downward incentive constraints as the relevant ones if the agent s preferences satisfy a single crossing property second we show how one may restrict the cardinality of the message spaces of the communication device an example illustrates our arguments and the suboptimality of one shot direct communication

from bottom of the barrel to cream of the crop sequential screening with positive selection in a number of interesting environments dynamic screening involves positive selection in contrast with coasian dynamics only the most motivated remain over time the paper provides conditions under which the principal s commitment optimum is time consistent and uses this result to derive testable predictions under permanent or transient shocks it also identifies environments in which time consistency does not hold despite positive selection and yet simple equilibrium characterizations can be obtained

a stage contingent model of design and growth for technology based new ventures abstract stage of growth developmental models have traditionally been used to enhance our understanding of the organizational creation and growth process until recently most of this literature has been primarily conceptual and descriptive this paper presents a stage of growth model theorized to hold for technology based new ventures the model consists of four stages conception and development commercialization growth and stability and views each stage of growth as a reflection of the dominant problems faced over the course of growth by the venture the model predicts that the organization of a venture will be a function ofthe dominant problems that define a stage of growth more specifically it is argued that a technology based venture s rate of growth depends in part on the consistency or fit between its stage of growth and certain structural features of its organization including decision making centralization and formalization and functional specialization in the areas of marketing and sales manufacturing and engineering technology data were collected from 105 technology based ventures in the electronics computer and peripherals industries to test the model the results were generally consistent with the theory and showed that centralization of decision making decreased as the firms moved to higher stages while formalization of decision making increased in higher stages specialization of roles in the functional areas of manufacturing and marketing also increased by stage however specialization in the engineering and technology functions remained high across all stages the contingency hypothesis was also supported indicating that technology based ventures growth is partially attributable to the fit between a venture s stage of growth and aspects of its structure these findings indicate that different patterns of decision making and functional specialization are required at each stage if growth is to be achieved as such this research validates a long standing but untested belief in the venture management field that performance of new ventures depends upon

renegotiation and information revelation over time the case of optimal labor contracts the paper analyzes the issue of commitment in grossman and hart s model of optimal labor contracts under asymmetric information about firm profitability we extend their framework by allowing employment to vary over time at equidistant intervals when both parties can precommit ex ante not to renegotiate the contract this replicates the grossman hart outcome each subperiod when precommitment is not possible information revealed through the contract can create pareto improving renegotiation opportunities and the issue of optimal information revelation arises the paper analyzes the impact of ex post pareto improving renegotiations on the optimal contract

the new econometrics of structural change dating breaks in u s labor productivity we have seen the emergence of three major innovations in the econometrics of structural change in the past fifteen years 1 tests for a structural break of unknown timing 2 estimation of the timing of a structural break and 3 tests to distinguish unit roots from broken time trends these three innovations have dramatically altered the face of applied time series econometrics in this paper we review these three innovations and illustrate their application through an empirical assessment of u s labor productivity in the manufacturing durables sector

contract negotiation and the coase conjecture a strategic foundation for renegotiation proof contracts what does contract negotiation look like when some parties hold private information and negotiation frictions are negligible this paper analyzes this question and provides a foundation for renegotiation proof contracts in this environment the model extends the framework of the coase conjecture to situations in which the quantity or quality of the good is endogenously determined and to more general environments in which preferences are nonseparable in the traded goods as frictions become negligible all equilibria converge to a unique outcome which is separating efficient and straightforward to characterize

the regulation of environmental innovations abstract we offer mechanisms to regulate environmental r d projects that are intertemporal and indivisible and involve high monitoring cost screening and contracting the r d performer are based solely on the project completion time when the project duration is ex ante uncertain to all parties including the performing firm the mechanism is formulated in terms of a completion time limit the mechanism extends to other intertemporal public projects as well as to principal agent settings with dynamic agent s tasks

a quantitative content analysis of the characteristics of rapid growth firms and their founders a group of firms that is attracting attention are rapid growth firms these firms are of particular interest because rapid growth is an indication of market acceptance and firm success by studying rapidgrowth firms researchers can help all firms better understand the attributes associated with firm growth despite these positive outcomes however rapid firm growth is difficult to achieve and maintain this study adds to the literature through a quantitative content analysis of the narrative descriptions of 50 rapid growth firms and a comparison group of 50 slow growth companies the purpose of the study was to draw from the narratives a list of empirically grounded growth related attributes that are associated with rapid growth firms the findings of the study resulted in the advancement of a conceptual model of the attributes of rapid growth firms in four areas founder characteristics firm attributes business practices and human resource management hrm practices

start up ventures towards the prediction of initial success abstract there are numerous studies on new product activities that try to measure the relative impact of different factors on success or failure the research on new ventures is less comprehensive and often only a few items are considered this article reports on the early results from a research program that is combining the research on both new products and new ventures to come up with a more comprehensive evaluation of relative success factors the literature was reviewed to determine the most significant factors found in prior work a 68 item questionnaire was developed and used with the chief executives of 24 new technical ventures all associated with the rpi incubator or technology park ten of the 17 factors investigated yielded reliable measurements which were then subjected to siepwise regression analysis to determine the relative impact of each factor on the two success measurements used initial quantified success and initial subjective success it should be recognized that initial success does not necessarily predict ultimate success an area to be investigated in continuing studies the two success measurements were not correlated and the correlations with the independent variables were therefore different initial quantified success showed a strong negative correlation with market attractiveness companies entering smaller or more slowly growing markets were doing better than those in the larger faster growing markets initial quantified success was positively correlated with the level of entrepreneurial characteristics exhibited by the leader s these were the only two variables exhibiting significant relationships with quantified success initial subjective success was negatively correlated with market dynamism rather than market attractiveness negative correlation was also measured with both r d intensity and the organic nature of the firm this latter finding is contrary to much of the new product literature which emphasizes the need for individual independence and initiative such may be the case with new products or ventures within large organizations but in small independent ventures the entrepreneur should provide strong control and guidance a positive correlation was observed with the entrepreneurial characteristics and also with the degree of match between the firm s experience and the new business requirements no significant correlation was observed with 1 product or service uniqueness 2 gross margin or 3 strategic aggressiveness the lack of correlation with these variables is surprising but it may be due to the small size of the sample the research confirmed two items that are understood by most scholars and experienced practitioners the importance of the entrepreneur and the importance of pursuing new ventures that match the technical and market experience of the team the less obvious results are those that suggest that success is favored by strong review and control by the entrepreneur rather than the development of employee initiative and independence also the initial success appears to be coming more readily to firms in more slowly growing or less dynamic markets it will take an expanded sample and a longer time horizon to determine if these initial trends continue to ultimate success

contract theory and implications for perennial energy crop contracting abstract this article provides an overview of modern contract theory and discusses the implications of the theory for contracting for perennial dedicated energy crops we discuss some of the unique challenges of contracting for dedicated energy crops used for the production of advanced biofuels and survey some of the relevant concepts and research from the contract theory literature to address these challenges we focus primarily on the mechanism design or complete contracts approach to contracting which involves optimizing some objective function e g profits costs etc with respect to contract terms subject to important incentive constraints the solution to these optimization problems typically highlight important tradeoffs that a contract designer needs to consider in order to maximize profits and or minimize costs

ex post renegotiation proof mechanism design we study what kind of equilibria of which mechanisms are ex post renegotiation proof eprp i e robust against the possibility of ex post renegotiation under a variety of renegotiation procedures and which social choice functions are eprp implementable in complete information environments with two agents only budget balanced groves allocations are eprp implementable while with three or more agents all ex post efficient allocations are in environments with independent private values essentially only the budget balanced groves in expectations allocations are eprp implementable while with three or more agents and correlated beliefs all ex post efficient allocations are

the aftermarket performance of small firm initial public offerings abstract the dream of many entrepreneurs is to some day take his or her growing small firm public and to thereby become the ceo of a publicly traded corporation currently entrepreneurs are continuing to utilize initial public offerings ipos as a viable source of venture financing ipos also represent a viable mechanism for harvesting venture capital and entrepreneurial investments the touted entrepreneurial benefits of taking a company public include the abilities to borrow additional funds return to the public equity market negotiate mergers without depleting cash the potential for enhanced personal wealth and so forth investors in small firm public equity issues are often motivated by the potential for discovering another apple computer or perhaps an ibm at the ground floor this study empirically examines the aftermarket returns of small publicly held firms that have issued initial public offerings aftermarket returns refers to stock returns immediately after a stock begins trading the study specifically examines two questions first is there a positive risk return relationship for small firm aftermarket returns where higher firm risk will generate higher aftermarket return second will aftermarket returns show on industry effect where certain industries will automatically generate higher returns answers to these questions will affect the strategic financial alternatives available to entrepreneurs both before and after going public and will also affect the decisions of investors interested in financing small public corporations the research findings indicate that entrepreneurs planning to take younger firms public will probably not have available to them numerous subsequent financial alternatives utilizing corporate stock if the true aftermarket performance of their stock is taken into consideration likewise investors in small firm public issues may also be disappointed in the aftermarket performance of younger firms a positive risk return relationship where age was a proxy measure of risk did not exist this was true even though the initially quoted returns of these same younger firms may have been substantial on the other hand the aftermarket performance of older firms is typically favorable finally the study suggests that neither entrepreneurs nor investors should bet solely on a particular industry categorization to carry their aftermarket stock performance while certain industries indicated significant positive initial returns aftermarket returns based on industry classification were generally not statistically significant investors should therefore always exercise firmspecific due diligence and research before investing in small firm public equity issues since the variance of their aftermarket market returns tends to be large

predictors of success in new technology based ventures abstract several recent studies have examined the causes of success and failure in new ventures from these a three level analysis has evolved which considers the management the venture s strategy and its competitive environment empirical testing is still at an early stage but results have generally supported the three level approach however the findings are not very strong this study considers only high potential technology based new ventures the companies on which venture capitalists concentrate it suggests that such firms face unusual time pressures and uncertainty and that their responses to these forces are major determinants of success or failure we propose 11 easily measured qualities describing management the firm s strategy and its environment which should influence how quickly the venture can act these should predict a new venture s performance the 11 attributes are tested on 36 new ventures representing essentially all of the startup investments of a major venture capital firm between 1974 and 1982 the data are taken from the firms original business plans performance is measured from the subsequent financial history using the compound rate of return to all shareholders founders employees and investors the ventures in this sample are primarily based on electronic or information technologies they are highly successful as a group with an average compound rate of return of 98 per year they are also very risky the standard deviation of returns is 171 per year and in 11 of 36 cases the shareholders lost on their investments results from a single sample must always be treated cautiously however several findings are strong enough to merit further study and to be incorporated as a part of a process for evaluating new ventures 1 1 a set of four measures representing all three areas explains 57 of the variance the four completeness of the founding team technical superiority of the product expected time for product development and buyer concentration all behave as expected the first two have a positive effect the latter two have an inverted u shaped relationship with an optimum development time of 12 months and an optimum number of customers of approximately 60 three other measures prior shared experience of the founders competitive conditions and projected market share show an influence when management strategy and environment are examined one area at a time 2 2 these relatively simple measures predict success well probably at least as well as any other study has done using more subtle measures 3 3 the measures used in this study though they have strong predictive power apparently did not influence the young capitalists otherwise the relationships should have been different when the return to venture capital investors was used in place of the total return in fact they were the same this suggests that the venture capital investors did not give sufficient weight to the qualities that we consider and could make better choices by giving greater attention to those measures 4 4 prospective entrepreneurs and investors should benefit from using our model aspart of their screening processes specifically they might calculate a predicted rate of return if it is low say below 30 per year they should examine the reason for the low score and consider whether circumstances exist which outweigh or invalidate that apparent weakness 5 5 an additive model seems realistic that is one can combine dissimilar qualities with appropriate weighting for relative importance to arrive at an overall figure of merit with strong predictive power the specific parameters imply that a company must have a complete management team and score well on two of the remaining three measures in order to be an attractive opportunity more generally the model allows a practitioner to make a rough assessment of the tradeoffs among management product and industry this is important because few if any new companies have all the qualities an investor may desire 6 6 although individual qualities of the founders are no doubt important this remains a difficult matter to demonstrate statistically 7 7 firms exist in an ever changing competitive environment to the extent that these findings are valid beyond this sample they may have been recognized and incorporated in more recent new ventures if so this may change the nature of competition and alter the key determinants of success or failure

employment with asymmetric information in an economy without informational and other distortions entrepreneurs and workers can write labor contracts that support a pareto optimal allocation of resources this paper is an attempt to characterize contracts when enterpreneurs are better informed about the state of nature than are their workers asymmetric information generally results in a suboptimal allocation of both risk and worker effort in particular if consumption and leisure are perfect substitutes employment will be less than fully pareto optimal in all but the most favorable states of nature

contract renegotiation and coasian dynamics consider a long term relationship between a seller and a buyer whose valuation for a per period service or a durable good is private as trade progresses the valuation will be partially revealed and it may be impossible for the parties to commit ex ante not to take advantage of this we analyse this situation first by supposing that the parties can sign a sequence of short term contracts and secondly by supposing that they can sign a long term contract but cannot commit not to renegotiate it later we find a close relationship in the second case between the optimal long term contract and the non commitment outcome in the standard coasian durable good model our results also have implications for hidden information principal agent models

vertical contracting with informational opportunism we consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts we highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship we characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints those constraints limit the manufacturer s ability to use yardstick competition among retailers they simplify contracts and restore a rent efficiency trade off even with correlated information we show that sell out contracts are optimal under a wide range of circumstances

optimal retention in agency problems this paper studies the interaction between a single long lived principal and a series of short lived agents in the presence of both moral hazard and adverse selection we assume that the principal can influence the agents behavior only through her choice of a retention rule this rule is further required to be sequentially rational i e no precommitment is allowed we provide general conditions under which equilibria exist where a the principal adopts a cut off rule under which agents are retained only when the reward they generate exceeds a critical bound and b agents separate according to type with better agents taking superior actions we show that in equilibrium a retained agent s productivity is necessarily declining over time but that retained agents are also more productive on average than untried agents due to selection effects finally we show that for each given type agents of that type are more productive in the presence of adverse selection than when there is pure moral hazard i e when that type is the sole type of agent in the model nonetheless adding uncertainty about agent types cannot benefit the principal except in uninteresting cases

contracting with imperfect commitment and the revelation principle the single agent case this paper extends the revelation principle to environments in which the mechanism designer cannot fully commit to the outcome induced by the mechanism we show that he may optimally use a direct mechanism under which truthful revelation is an optimal strategy for the agent in contrast with the conventional revelation principle however the agent may not use this strategy with probability one our results apply to contracting problems between a principal and a single agent by reducing such problems to well defined programming problems they provide a basic tool for studying imperfect commitment

auctions with limited commitment we study the role of limited commitment in a standard auction environment in each period the seller can commit to an auction with a reserve price but not to future reserve prices we characterize the set of equilibrium profits attainable for the seller as the period length vanishes an immediate sale by efficient auction is optimal when there are at least three buyers for many natural distributions two buyers is enough otherwise we give conditions under which the maximal profit is attained through continuously declining reserve prices

a bargaining model with incomplete information about time preferences etude d un jeu de negociation strategique sequentiel avec information incomplete caracterisation d une classe d equilibres sequentiels appeles equilibres sequentiels de negociation et demonstration de l unicite de cet equilibre

vertical integration in the presence of upstream competition we analyse vertical integration when there is upstream competition and compare outcomes to the case where upstream assets are owned by a single agent i e upstream monopoly in so doing we make two contributions to the modelling of strategic vertical integration first we base industry structure namely the ownership of assets firmly within the property rights approach to firm boundaries second we model the potential multilateral negotiations using a fully specified non cooperative bargaining model designed to easily compare outcomes achieved under upstream competition and monopoly given this we demonstrate that vertical integration can alter the joint payoffs of integrating parties in ex post bargaining however this bargaining effect is stronger for firms integrating under upstream competition than upstream monopoly we also consider the potential for integration to internalise competitive externalities in manner that cannot be achieved under non integration we demonstrate that ex post monopolization is more likely to occur when there is an upstream monopoly than when there is upstream competition our general conclusion is that the simple intuition that the presence of upstream competition can mitigate and reduce the incentives for socially undesirable vertical integration is misplaced and depending upon the strength of downstream competition i e product differentiation the opposite could easily be the case journal of economic literature classification number l42

long term contracting with markovian consumers to study how a firm can capitalize on a long term customer relationship we characterize the optimal contract between a monopolist and a consumer whose preferences follow a markov process the optimal contract is nonstationary and has infinite memory but is described by a simple state variable under general conditions supply converges to the efficient level for any degree of persistence of the types and along any history though convergence is history dependent in contrast as with constant types the optimal contract can be renegotiation proof even with highly persistent types these properties provide insights into the optimal ownership structure of the production technology

torture and the commitment problem we study torture as a mechanism for extracting information from a suspect who may or may not be informed we show that a standard rationale for torture generates two commitment problems first the principal would benefit from a commitment to torture a suspect he knows to be innocent secondly the principal would benefit from a commitment to limit the amount of torture faced by the guilty we analyse a dynamic model of torture in which the credibility of these threats and promises is endogenous we show that these commitment problems dramatically reduce the value of torture and can even render it completely ineffective we use our model to address questions such as the effect of enhanced interrogation techniques rights against indefinite detention and delegation of torture to specialists

imperfect commitment and the revelation principle the multi agent case with transferable utility abstract bester and strausz bester h strausz r 2001 contracting with imperfect commitment and the revelation principle the single agent case econometrica 69 1077 1098 showed that the revelation principle is invalid in a multi agent no commitment setting we show that if transfers are possible it does apply in their setting unless at least two agents have private information

a contracting perspective on earnings quality abstract this paper analyzes the impact of signal to noise ratios and the autocorrelation of a performance measure on the principal s welfare in dynamic agencies with renegotiation we consider the impact of changes in the persistent transitory and reversible components of accounting earnings on its usefulness in valuation versus contracting increasing the persistent components and reducing the reversible components are generally desirable for valuation but not for contracting eliminating transitory components of earnings is generally desirable for valuation but not necessarily for contracting we discuss the contracting implications of differences in the autocorrelations of accounting earnings versus stock returns

financial performance patterns of new corporate ventures an alternative to traditional measures abstract this paper describes some of the limitations involved in using traditional performance measures to evaluate new ventures and suggests an alternative we argue that the use of traditional performance measures in the new venture setting can produce misdirected decision making by managers and misleading model development by researchers the traditional performance measures evaluated are return on investment cashflow market share gain and returns to stockholders the alternative performance measured presented is based upon an evaluation of patterns of improvement in return on investment across time these patterns of performance are mapped using regression analysis return on investment is regressed against time and the parameters of the resulting models parameters are themselves used as performance measures the beta coefficient is used to measure the overall rate of change in financial performance from year to year and the coefficient of determination r 2 is used to measure the predictability of change to combine the information available in each of these parameters into a single variable we multiply by r 2 and call the result v thus v is a measure of the velocity of improvement in financial performance across time adjusted for the level of variability in the performance trend much work remains to be done that could substantially improve the usefulness of v to managers and researchers more sophisticated approaches than the one used here might include weighting either or r 2 to fit the particular goal orientation of a given management team other model parameters might be used in conjunction with or in place of or r 2 to increase or improve the information captured in v measures of financial performance other than return on investment roi could also be used as the basis of calculating v even in its current simple form however v appears to be a useful performance measure in 87 of 112 ncvs studied v provided a useful summary of the pattern of performance s development in 25 of 112 cases there were important characteristics of performance that could not be captured by v the most important managerial implication of v entails the shift to evaluating a new venture on the basis of its progress toward a desirable end rather than on the end itself this provides a logical means of evaluating the financial performance of a new venture at an earlier time than would be possible otherwise

economic reform and dynamic political constraints in this paper we examine the impact of political constraints on economic reform plans with special reference to the transition from centrally planned to market economies we analyse the problem of an agenda setting reform minded government facing a bureaucracy or industrial sector for which allocative efficiency requires redundancies and an increase in work intensity the government also tries to minimize the rents conceded to its heterogeneous workforce we examine two types of political constraints unanimity rule and majority rule both in a one period and a two period horizon the main results are the following first of all we show how adverse selection and time consistency may generate the widely observed feature of gradualism as an ingredient of an optimal reform second under a majority rule it is shown to be possible for the government to obtain a majority vote for a reform scheme that intertemporally hurts majority interests indeed the government can improve rent extraction through the strategic use of the threat of future proposals the group which expects to be in the minority tomorrow may accept concessions while its votes can be used to extract rents from another group these results suggest that in a dynamic context democratic constraints should not be overestimated as an obstacle against efficiency enhancing economic reforms the results of this paper may throw some light on the political economy of current reforms in eastern europe governments and political decision makers in general always face political constraints when elaborating reform proposals they know that the need to overcome potential opposition from various groups of the population constrains proposals for change political constraints vary depending on the specific institutional structure of society and are clearly different under a military dictatorship than under a parliamentary democracy the role of political constraints seems particularly important in eastern europe today where new democratic governments face the huge task of achieving the transition to a market economy while the introduction of democracy may have removed some important obstacles to economic change namely the veto power of a powerful nomenclatura under communist one party rule fears are expressed that it could potentially jeopardize economic reforms which may during the transition period hurt a majority of the population what can economic theory tell us about optimal economic reform under political constraints this paper starts addressing this ambitious question by looking at structural reform focusing on a restructuring of economic sectors which requires massive redundancies and a significant rise in labour productivity our model illustrates the case of planning

dynamic contractual enforcement a model of strikes this paper provides a theory of strikes as part of a constrained efficient enforcement mechanism for an implicit contractual agreement a firm possessing contemporaneously private information about demand engages in an enduring relationship with its workforce if the information becomes perfectly observable subsequently then modulo discounting the first best is implementable but strikes are always off the equilibrium path if the observations of the workforce are imperfect strikes occur in equilibrium the dynamic contracting problem is modeled as a repeated game with imperfect monitoring the equilibrium exhibits production inefficiency and incomplete insurance to mitigate the inefficiencies caused by strikes

incentives equality and contract renegotiations theory and evidence in the chinese banking industry renegotiation plays an important role in contract theory but the empirical study of renegotiation is almost non existent in the literature using a unique dataset from the chinese banking industry we find that the large majority of managerial incentive contracts are renegotiated after performances are realized we develop a model of contract renegotiation where supervisors and managers sign incentive contracts and then renegotiate them in the unique equilibrium of the model incentive contracts are almost always renegotiated ex post even though renegotiation is fully anticipated incentive contracts affect performance the predictions of the model find strong support from our empirical results

dynamic labor contracts under asymmetric information abstract this paper discusses the distortion of employment within a two period asymmetric information contracting model in which an exogenous demand shock is serially correlated and is known only to firms the obtained results show that serial correlations of the state of nature can cause not only underemployment but also overemployment even when overemployment never occurs in the context of a static asymmetric information contracting model

competitive markets without commitment in the presence of a time inconsistency problem with agency contracts we show that competitive markets can implement allocations that pareto dominate those achieved by a benevolent government and they induce more effort we analyze a model with moral hazard and a two sided lack of commitment after agents have chosen their work firms can modify contracts and agents can switch firms if the ex post market outcome satisfies a weak notion of competitiveness and sufficiently separates individuals it is pareto superior to a government s allocation with a complete breakdown of incentives moreover competitive markets without commitment implement more effort in equilibrium under general conditions

agency costs and the limits of integration in this article i identify a type of integration cost that is associated with agency relations within the firm this cost arises when the firm s principal cannot fully commit to long term contracts with the firm s agents and these agents have private information in the model integration can lead to value enhancements through the realization of complementarity gains but this will also lead to larger rents which is costly for the principal i show that this type of cost may be sufficiently large to act as an effective limit for integrations that are otherwise profitable

labor contracts under asymmetric information when workers are free to quit this paper examines the impact of workers ability to quit on the performance of labor contracts between workers and privately informed firms while the need to induce workers to remain with the firm necessarily lowers total welfare the effect on employment levels is to reduce the magnitude of the inefficiency due to asymmetric information whether this inefficiency is under or overemployment the model predicts that employment distortions increase with the strength of lock in effects on workers a prediction which contrasts with the results of efficiency wage models and which may help in empirical testing of labor contract theory