Organization of Project Evaluation and Implementation under Moral Hazard

Jost, Peter‐J.; Lammers, Frauke

doi:10.1628/093245610791343030

Cited by 4 publications

(3 citation statements)

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“…Similar models have been considered in the economics literature. For example, Schmitz (2005), Winter (2006), Tamada and Tsai (2007), and Jost and Lammers (2010) consider settings with binary effort; while Lukas (2007), Schmitz (2013), Pi (2014), Balmaceda (2016) and Altan (2019) study settings with binary effort and symmetric costs.…”

Section: Decentralized Setting With a Single Vendormentioning

confidence: 99%

Impact of Organizational Structure on Development Strategy under Equity‐Based Incentives

Ryan

et al. 2021

Production and Operations Management

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This study considers the product development process for a start‐up that relies on equity‐based incentives to motivate effort by vendors who are hired to contribute to the development process. We study how the organizational structure of the start‐up affects the choice between sequential and concurrent development using a two‐task model, in which both tasks must be completed for the start‐up to earn revenue. We study several organizational structures, which differ in terms of task allocation, including centralized development, joint development, and decentralized development with one or two vendors. In the joint development and decentralized structures, the vendors must determine the amount of effort to exert on each task, where the probability that the task can be completed is increasing in effort. In exchange for effort, each vendor is offered a percentage of the revenue earned by the start‐up upon completion of the project. The start‐up must determine whether the tasks should be performed concurrently or sequentially, as well as the incentive rate to offer the vendors. We find that organizational structure plays a major role in determining the optimal development strategy. In a centralized setting, where both tasks are performed in‐house, the sequential development strategy is preferred. However, in a decentralized setting, where a single vendor performs both tasks, the opposite may occur. This is due, in part, to the inefficiency caused by the vendor's forward‐looking behavior under sequential development. This same result does not occur in a decentralized setting with two vendors or in the joint development setting.

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Section: Decentralized Setting With a Single Vendormentioning

confidence: 99%

Impact of Organizational Structure on Development Strategy under Equity‐Based Incentives

Ryan

et al. 2021

Production and Operations Management

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“…Works in this direction include, among others, Tirole (1986) [80], Demski and Sappington (1987) [25], Baiman, Evans, and Noel (1987) [4] and Kofman and Lawarree (1993) [46] on collusion and auditing within a hierarchy, as well as Melumad, Mookherjee, and Reichelstein (1995) [57], McAfee and McMillan (1995) [56], Laffont and Martimort (1997) [49], Mookherjee (2006) [63] on adverse selection. In our framework, we will focus on moral hazard within a hierarchy, as in the work of Laffont (1990) [48], Yang (1995) [85], Macho-Stadler and Pérez-Castrillo (1998) [54], Itoh (2001) [40] and Jost and Lammers (2010) [42]. 2 However, it should be noted that the above-mentioned models are discrete-time models, mostly consisting of a single period.…”

Section: Introductionmentioning

confidence: 99%

Continuous-time incentives in hierarchies

Hubert¹

2020

Preprint

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This paper studies continuous-time optimal contracting in a hierarchy problem which generalises the model of Sung (2015) [78]. The hierarchy is modeled by a series of interlinked principal-agent problems, leading to a sequence of Stackelberg equilibria. More precisely, the principal can contract with the managers to incentivise them to act in her best interest, despite only observing the net benefits of the total hierarchy. Managers in turn subcontract with the agents below them. Both agents and managers independently control in continuous time a stochastic process representing their outcome. First, we show through a continuous-time adaptation of Sung's model that, even if the agents only control the drift of their outcome, their manager controls the volatility of their continuation utility. This first simple example justifies the use of recent results on optimal contracting for drift and volatility control, and therefore the theory of second-order backward stochastic differential equations, developed in the theoretical part of this paper, dedicated to a more general model. The comprehensive approach we outline highlights the benefits of considering a continuous-time model and opens the way to obtain comparative statics. We also explain how the model can be extended to a large-scale principal-agent hierarchy. Since the principal's problem can be reduced to only an m-dimensional state space and a 2m-dimensional control set, where m is the number of managers immediately below her, and is therefore independent of the size of the hierarchy below these managers, the dimension of the problem does not explode.

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“…Sales growth beyond a threshold hampers profitability and shareholders' wealth (Ramezani et al , 2002). Therefore, companies need to screen projects (Gomes et al , 2016; Jost and Lammers, 2010) and staff them optimally (Sattinger, 1993) to maximise profitability. Thus, in knowledge-based service organisation in the quaternary sector, where human resource (HR) and intellectual capital play vital role in providing organisations with “competitive advantage in their expanded markets and in the global economy” (Okoro and Washington, 2012), allocation of human resource (workforce) plays a critical role.…”

Section: Introductionmentioning

confidence: 99%

Maximising profitability of quaternary sector organisations through workforce optimisation

Ghosh¹,

Kundu

Ghosh

et al. 2020

BIJ

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PurposeThe purpose of this paper is to develop a workforce optimisation model that maximises the profitability of a knowledge-based service organisation in the quaternary sector.Design/methodology/approachAn optimisation model that allocates resources from different skillsets and seniority to projects that are delivered from several geographies has been developed in this paper. With the objective of maximising the profitability of a pipeline of projects, the model selects which projects to accept and which not to and indicates how many resources to hire for (or layoff from) each skillset-seniority-geography combination.FindingsThe paper discusses the model and its scalable nature. Through hypothetical scenarios, it is shown that the model, using a simple non-linear algorithm, converges to optimal solutions.Research limitations/implicationsThe model depends on inputs that are exogenously supplied by the organisation. The applicability of the outcome is dependent on them. However, on the other hand, it allows for the alignment of the outcomes with the strategic objective of the organisation.Practical implicationsThe paper discusses the multi-dimensional nature of effective human resource allocation problem. It not only maximises profitability but also allows organisations to strategically screen projects. With proper calibration and minor modifications, the model may be used to allocate resources across the knowledge-based industry.Originality/valueThe paper integrates the demand and supply-side problems of workforce allocation to projects in a novel way to form a tractable model that is pragmatic and applicable.

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Organization of Project Evaluation and Implementation under Moral Hazard

Cited by 4 publications

References 0 publications

Impact of Organizational Structure on Development Strategy under Equity‐Based Incentives

Impact of Organizational Structure on Development Strategy under Equity‐Based Incentives

Continuous-time incentives in hierarchies

Maximising profitability of quaternary sector organisations through workforce optimisation

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