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Author: Ju Myung Song
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
1. Problem Definition: This article explores the incentive issues and gaming behaviors of firms under risk sharing partnerships in a project management setting, motivated by real-life examples. 2. Academic/Practical relevance: Collaboration prevails in projects within diverse industries. The risk sharing partnership, in which each partner pays for its own cost and shares the outcome (either reward or loss) upon project completion, is one of the most popular ways to manage collaborations in practice. However, the risk sharing partnership may lead to project failure in the forms of excessive delays and cost overruns, but the driving forces (e.g., incentives) and mechanisms (e.g., gaming behaviors) in project management settings are not yet fully understood. 3. Methodology: Relative to the one-firm-does-all strategy, we studied how risk sharing partnerships may affect firms' incentives in project execution, and thus, project metrics (duration and cost) for various project networks (serial vs. parallel), risk levels (deterministic vs. stochastic duration), and information status (symmetry vs. asymmetry). 4. Results: We found that risk sharing partnerships may encourage deliberate delays and cost overruns through various mechanisms, such as the Prisoner's Dilemma, the Supplier's Dilemma, and the Coauthor's Dilemma. Counterintuitively, information asymmetry may outperform information symmetry on project metrics for both deterministic and stochastic duration, contingent upon the network structure, cost parameters, and partners' beliefs. 5. Managerial implications: By connecting theory to practice, we provide insights into the incentive issues of some real-life projects and justifications for several mitigation strategies to avoid such gaming behaviors in practice.
Author: Ju Myung Song
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
1. Problem Definition: This article explores the incentive issues and gaming behaviors of firms under risk sharing partnerships in a project management setting, motivated by real-life examples. 2. Academic/Practical relevance: Collaboration prevails in projects within diverse industries. The risk sharing partnership, in which each partner pays for its own cost and shares the outcome (either reward or loss) upon project completion, is one of the most popular ways to manage collaborations in practice. However, the risk sharing partnership may lead to project failure in the forms of excessive delays and cost overruns, but the driving forces (e.g., incentives) and mechanisms (e.g., gaming behaviors) in project management settings are not yet fully understood. 3. Methodology: Relative to the one-firm-does-all strategy, we studied how risk sharing partnerships may affect firms' incentives in project execution, and thus, project metrics (duration and cost) for various project networks (serial vs. parallel), risk levels (deterministic vs. stochastic duration), and information status (symmetry vs. asymmetry). 4. Results: We found that risk sharing partnerships may encourage deliberate delays and cost overruns through various mechanisms, such as the Prisoner's Dilemma, the Supplier's Dilemma, and the Coauthor's Dilemma. Counterintuitively, information asymmetry may outperform information symmetry on project metrics for both deterministic and stochastic duration, contingent upon the network structure, cost parameters, and partners' beliefs. 5. Managerial implications: By connecting theory to practice, we provide insights into the incentive issues of some real-life projects and justifications for several mitigation strategies to avoid such gaming behaviors in practice.
Author: Konstantinos Serfes
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We study the matching patterns between heterogeneous principals and agents in a principal-agent model. The resulting equilibrium relationship between risk and incentives could be negative, positive or U-shaped. These results may provide an explanation for the absence of systematic empirical support for the standard risk model.
Author: Michael J. P. Magill
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Economists hold two opposing views of the stock market: one focuses on the negative effect on incentives of separating ownership and control, the other emphasizes its beneficial role for risk sharing. Using a generalization of Diamond's model which incorporates the effect of entrepreneurial incentives, we show how these two views can be reconciled. We introduce the concept of a stock market equilibrium with rational competitive price perceptions (RCPP) and show that such and equilibrium leads to a constrained optimal trade-off between risk sharing and incentives. We give examples showing the difference between RCPP equilibria and the standard CAPM type equilibria of finance.
Author: Mark H. Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In the absence of market imperfections, the mutuality principle leads to efficient risk sharing and the Pareto optimal asset allocations. With market imperfections such as transaction costs and information asymmetry, risk-sharing becomes costly, and it can even lead to financial crises. We emphasize the impact of risk-sharing on the real economy, especially the incentives for the insured party to take on excessive risks because the downsides are borne by the insurer (i.e., the moral hazard problem). We then review selective literature and summarize papers included in this issue, grouping them into three broad categories: risk identification, risk measurement, and risk management techniques. We conclude by outlining several streams of future research, including mechanisms to monitor excessive risk-taking, how to mitigate risk interconnectedness, and the potential applications of FinTech in risk sharing.
Author: Bernard Sinclair-Desgagne
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
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Book Description
This paper seeks to characterize incentive compensation in a static principal-agent moral hazard setting in which both the principal and the agent are prudent (or downside risk averse). We show that optimal incentive pay should then be `approximately concave' in performance, the approximation being closer the more downside risk averse the principal is compared to the agent. Limiting the agent's liability would improve the approximation, but taxing the principal would make it coarser. The notion of an approximately concave function we introduce here to describe optimal contracts is relatively recent in mathematics; it is intuitive and translates into concrete empirical implications, notably for the composition of incentive pay packages. We also clarify which measure of prudence - among the various ones proposed in the literature - is relevant to investigate the tradeoff between downside risk sharing and incentives.
Author: Steven Shavell
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Institute of Medicine
Publisher: National Academies Press
ISBN: 0309048273
Category : Medical
Languages : en
Pages : 381
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Book Description
The United States is unique among economically advanced nations in its reliance on employers to provide health benefits voluntarily for workers and their families. Although it is well known that this system fails to reach millions of these individuals as well as others who have no connection to the work place, the system has other weaknesses. It also has many advantages. Because most proposals for health care reform assume some continued role for employers, this book makes an important contribution by describing the strength and limitations of the current system of employment-based health benefits. It provides the data and analysis needed to understand the historical, social, and economic dynamics that have shaped present-day arrangements and outlines what might be done to overcome some of the access, value, and equity problems associated with current employer, insurer, and government policies and practices. Health insurance terminology is often perplexing, and this volume defines essential concepts clearly and carefully. Using an array of primary sources, it provides a store of information on who is covered for what services at what costs, on how programs vary by employer size and industry, and on what governments doâ€"and do not doâ€"to oversee employment-based health programs. A case study adapted from real organizations' experiences illustrates some of the practical challenges in designing, managing, and revising benefit programs. The sometimes unintended and unwanted consequences of employer practices for workers and health care providers are explored. Understanding the concepts of risk, biased risk selection, and risk segmentation is fundamental to sound health care reform. This volume thoroughly examines these key concepts and how they complicate efforts to achieve efficiency and equity in health coverage and health care. With health care reform at the forefront of public attention, this volume will be important to policymakers and regulators, employee benefit managers and other executives, trade associations, and decisionmakers in the health insurance industry, as well as analysts, researchers, and students of health policy.
Author: Haig R. Nalbantian
Publisher: Rl Innactive Titles
ISBN:
Category : Business & Economics
Languages : en
Pages : 264
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Book Description
Under the pressure of growing foreign competition, many American firms are entering into incentive contracts with their employees. As a result, the standard fixed-wage system is gradually giving way to a more diversified system of remuneration in which a significant portion of employee income is based upon some measure of the firm's performance. In this volume, a group of economists, industrial psychologists, and business and labor professionals examine the merits of alternative forms of remuneration. The contributors explore such issues as profit sharing, productivity sharing, bonus systems, and employee stock ownership.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
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Author: Joseph E. Stiglitz
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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