Flexible Contracts Research Articles

Emerging Medium-Scale Tenant Farming, Gig Economies, and the COVID-19 Disruption: The Case of Commercial Vegetable Clusters in Ethiopia.

Driven by the fast spread of private irrigation pumps, there has been a rapid expansion of intensive vegetable cultivation in the central Rift Valley in Ethiopia, making it the most important commercial vegetable production cluster in the country. Supporting that “quiet revolution” has been an inflow of migrant laborers—paid through daily, monthly, or piecemeal contracts, with few employment benefits attached to them—and a gig economy as widely used contractors organize, among others, mechanized land preparation, the digging of wells and ponds, seedling propagation, and loading of trucks. Almost 60% of the irrigated area is cultivated by medium-scale tenant farmers relying on short-term rental contracts. It seems that gig economies characterized by flexible contract arrangements implemented by outside contractors, which are increasingly fueling sophisticated sectors in developed countries, are important in these commercial agrarian settings in Africa as well. We further find that the COVID-19 pandemic has led to significant disruptions of this model, as seen by more limited access to services and the unavailability or high price increases in factor markets, especially for labor, and large but heterogenous price changes in output markets.

Analysis of the category of variation order in x project at XYZ ltd

The construction project is one of the jobs which has a high level of complexity, dynamic and high risk with various uncertainties. Uncertainty which often arises in construction projects of jobs procurement increases or decreases or often mentioned as variation orders. Variation order is considered difficult to be anticipated and have a large impact on construction projects related to the increase in achievement of work progress. Therefore the impact of variation order which is caused by construction costs is greater followed by the higher frequency variation orders will have an impact on the construction project. The purpose of this study was to determine the type of variation order and cost value on X project at XYZ Ltd. This research method was a qualitative study with a literature study to obtain research variables. Secondary data was obtained from the project documents in the form of contract instructions which contained the causes and impacts which were resulted from variation order. Furthermore, Data was classified based on variables from the literature review. The results showed that the percentage of preparing design aspect was 31.50% of the total cost of variation order, site condition was 17.62% of the total cost of variation order, client change was 2.8% of the total cost of variation order and the flexibility contract was 48, 03% of the total cost of variation order. The frequency of variation orders occurance due to preparing designs was 49% of the total frequency, site conditions was 25% of the total frequency, client change was 13% of the total frequency and flexibility contract was 13% of the total frequency.

A Mathematical Modeling for Contract Flexibility Optimization by Brazilian Free Consumers

In Brazil, free consumers must follow the criteria established by Law 9.074/95 and participate in the Free Contracting Environment (ACL), regulated by Decree 5.163/04, together with energy generators, traders, importers and exporters. These free consumers can choose and negotiate their energy purchase contracts (energy volumes, contract terms, prices, flexibilization and financial guarantees) with the other agents connected to the interconnected Brazilian grid. However, free consumers must have 100% of its energy contracted to avoid exposure to the short-term market and possible penalties, among others points. It is noteworthy that free consumers in Brazil are usually large industries and use electricity energy only to manufacture their products. In this sense, they are totally averse to contractual risks and penalties and seek the ACL only to obtain financial reductions with the same contractual security as the regulated market. In this sense, the main objective of this work is to model the mathematical optimization problem for contract flexibility optimization by free consumer in the ACL, minimizing the energy cost to meet its demand.

Contracts as Reference Points: A Replication

We replicate two treatments of an experimental theory test (Fehr et al., 2011) studying Hart and Moore (2008)’s idea that contracts serve as reference points in trading relationships. In contrast to rigid contracts, flexible contract terms may be perceived in a self-serving manner and, therefore, the contract parties might form subjective entitlements. This reference-dependent perception of flexible contract terms leads to a trade-off of the contractual form. While flexible contracts are, in theory, deemed preferable to rigid contracts, frustrated subjective entitlements may lead to perfunctory performance and shading behavior that is absent in rigid contracts. The results of our replication are mixed. On the one hand, we find that sellers under flexible contracts shade more often than sellers under rigid contracts and our replication analysis suggests replication success. On the other hand, our analysis does not indicate a meaningful positive effect of removing ex ante competition on shading rates under rigid contracts. Our replication analysis does not unambiguously suggest replication success here. Thus, we do not find supporting evidence for the idea that competition creates objectivity and enhances perceived fairness of the contract terms.

Contract design in China’s rural land rental market: Contractual flexibility and rental payments

I study bargaining over contract arrangements—contractual flexibility and rental payments—that profoundly affects the ex-post surplus of China’s rural land rentals in the context of urban–rural separation. My theory suggests which equations should be estimated to test bargaining over multiple contractual terms. My theoretically justified empirical structure differs from conventional models and helps to explain seemingly inconsistent empirical results reported in the literature. Using transactional data collected by a new transaction-oriented sampling strategy, I draw two conclusions while also supporting my characterization of the bargaining mechanism. First, compared with renting-in partners, renting-out agents respond more strongly to non-agricultural employment uncertainty induced by urban–rural separation, which increases contractual flexibility. Second, social proximity helps non-stranger entrepreneurs obtain low-flexibility contracts without fully compensating renting-out agents, suggesting that urban–rural separation erects a social barrier to strangers that village trust lowers because social proximity and contractual flexibility are substitutes only in low-trusting environments.

Dataset for solving a hybrid flexibility strategy on personnel scheduling problem in the retail industry.

This data article describes datasets from a home improvement retail store located in Santiago, Chile. The datasets have been developed to simultaneously solve a staffing and tour scheduling problem that incorporates flexible contracts and multiskilled staff. This Data in Brief article is related to the published article “Hybrid flexibility strategy on personnel scheduling: Retail case study” [1]. The datasets contain real, processed, and simulated data. Regarding the real and processed datasets, they are presented for three different store sizes (4, 5 or 6 departments). Real datasets include information about the employment-contract characteristics, cost parameters, and a forecast of the number of employees required in each department for each day of the week and each time period into which the operating day is divided. As regards the data processed for the case study, they include the set of skill sets considering that the employees can be trained in a maximum of two store departments. Regarding the simulated datasets, they include information about the random parameter of staff demand in each store department. The simulated data are presented in 90 text files classified by: (i) Store size (4, 5 or 6 departments). (ii) Coefficient of variation (10, 20, 30%). (iii) Instance identification number (10 instances per scenario that resulted from combining the store sizes and coefficients of variation). Researchers can use the datasets for benchmarking the performance of different approaches with the one presented by Porto et al. [1], and in consequence, they can find solutions to the same (or similar) type of personnel scheduling problem. The dataset includes an Excel workbook that can be used to randomly generate staff demand instances according to a chosen coefficient of variation.

Flexibility and Sharīʿah Compliance of Islamic Financial Contracts: An Evaluative Framework

Abstract Although the key distinguishing feature of Islamic finance is compliance with Sharīʿah, there is criticism from various quarters on the Sharīʿah compliance of its products. However, there is no objective way to assess the Sharīʿah compliance of Islamic financial contracts. This article develops a structured framework for analysing Sharīʿah compliance of Islamic financial contracts by deconstructing them and developing principles of evaluation based on concepts from Islamic legal theory. Other than providing a framework to assess Sharīʿah compliance of Islamic financial contracts, this article also alludes to an important issue regarding the contracts’ flexibility. Using concepts from Islamic legal theory, the article classifies different contractual stipulations according to their legal weight, and identifies how legal perspectives on the requirements of compliance can determine the flexibility of contracts. An evaluative framework is used to assess the Sharīʿah compliance of an actual muḍārabah (silent partnership) contract and finds it to be defective.

Flexibility in contract design - is that possible?

Public procurement is widely used in order to incorporate competition into public services. Competition in procurement often leads to efficiency but the process can also raise some problems. While providing the procurement documents you do not know who will be your upcoming partner. Another aspect is how flexibility can be managed in contract design while maintaining a high service quality. The aim of this study is twofold. Firstly, the aim is to investigate how flexibility has been expressed and historically described in bus tendering documents. Secondly, to explore how the actors define or describe flexibility and its importance in tendering. Data was collected from ten years of tendering documents in the bus sector in Sweden and from interviews and a workshop. The results showed that flexibility in tendering documents has been and still is low for the operators. However, the actors wish for more flexibility and new forms of contracts can make it easier to include higher degrees of flexibility in future contracts. The paper contributes to the ongoing discussion about how to design contracts and to manage flexibility. The study has potential to create knowledge and contribute to better decision making for future procurement of bus transport.

Profit distribution and managers\u2019 behaviour in vertical integrated medical delivery systems \u2013 an experimental economics study

BackgroundThe vertical integration of medical delivery systems (VIMDSs) is a reform direction both in China and worldwide. We conducted a controlled economic experiment to explore decision-making by managers of medical institutions with respect to profits and what influences the distribution mechanism in VIMDSs.MethodsStudents and hospital staff were recruited to make choices regarding the role of directors of institutions. z-Tree software was used to design the experimental program. Ninety-six subjects participated in the experiment. We gathered 479 valid contracts.ResultsOf the subjects, 66.39% chose flexible contracts. The median of the bidding distribution rate to community health service centres of all auctions was 18.50%. The final distribution rate was approximately 3 percentage points higher than the bidding distribution rate. The median effort level was 9.00. There was a significant correlation between the improvement rate and the choice of effort level (P<0.05) in flexible contracts.ConclusionsHospital managers have a preference for flexible contracts because of uncertainty in the medical system. A community health service centre director may behave perfunctorily by engaging in shading in the integration. Flexible contracts and sharing rates beyond the participants’ expectations motivate managers to engage in more cooperative behaviours.

Upstream Competition with Complex and Unobservable Contracts

This paper examines situations where two vertically integrated firms consider supplying an input to an independent downstream competitor via privately observed contracts. We identify equilibria where competition in the upstream market emerges—the downstream competitor gets supplied—as well as when the downstream firm does not receive the input and is excluded from the market. The likelihood of the outcome in which the downstream firm does not get supplied depends not only on demand parameters, but also on contractual flexibility and observability. We show that when contracts are unobservable, downstream entry will occur less often. Furthermore, our results suggest that permitting contracts that enable the contracting parties to coordinate their behavior in the downstream market may improve welfare by increasing the likelihood that the downstream firm is supplied.

Flexible contracting with heterogeneous agents and stochastic demand

While the predominant pricing scheme for services is a set of long-term contracts stipulating a fixed fee for a level of usage, many service providers now offer flexible contracts. These contracts include flexibility in usage level and the option to opt out of the service in certain time periods. We study the effectiveness of flexible contracts in aligning the interests between the service provider and the customers in the presence of customers with different discrete demand distributions. This work develops a unified principal–agent framework to examine multiple versions of flexible contracts under ex post information asymmetry. We explore two types of contract variations. The first is aggregated versus differentiated contracts across an agent’s random demand values, the second is whether an agent may decline participation in a future time period after committing to a set of contract options. We find that the principal always prefers differentiation to aggregation, and under differentiation prefers to require participation at each time period. However, when demand variability is grouped together under aggregated contracts, we derive a sufficient condition for when is it more profitable to allow the agents the flexibility to opt out of participating in future time periods. Furthermore, the agents’ preference and the overall social utility depends on agents’ value functions and demand distributions. Our study provides insights that help decision makers price their services to better satisfy customers’ varying needs while improving the profitability of the service.

Optimal production lot size under backup agreement allowing substitute products

In the fashion industry, a flexible backup agreement contract allows the retailer to order a partial amount from the backup quantity to allay the risk of uncertain market demand. However, under such a contract, the manufacturer faces the risk of bearing a huge leftover if the quantity realized by the retailer in backup is small. Accordingly, the present study considers a modified backup agreement in which the manufacturer is permitted to urgently purchase substitute products to satisfy the backup order from a third-party supplier, but at a unit purchase cost greater than the original unit manufacturing cost. The corresponding expected total profit function for the manufacturer is established and shown to be concave. The profit function is used to explore various useful properties for determining the optimal production lot size. In addition, an illustrated numerical example is provided to analyze the impact of the backup contract terms on the optimal production lot size and manufacturer’s profit.

Quantity flexible contract under information asymmetry

ABSTRACT In this paper a quantity flexible contract is designed in a two-echelon supply chain with a single manufacturer and a retailer. Specific type of products are considered for which the customers place orders with the retailer prior to the beginning of the selling season. The exact demand is known to the retailer only at the beginning of the selling period once all the orders have been placed. The demand patterns during the period of the placement of orders from the customers are considered to be the private information of the retailer. Under such an environment of information asymmetry a contract between the manufacturer and the retailer is proposed which enables the retailer to order the exact realized demand from the manufacturer. The underlying adverse selection model is developed and analyzed in a principal-agent framework. The quantity flexible contract derived in this paper enables the retailer to place an order equal to the exact market demand for all types of demand patterns which the retailer may encounter; thus, the manufacturer receives his market share to the fullest extent. Under normal circumstances, the retailer may have to forego sales when situations of unusually high demand pattern arise, resulting in an opportunity cost. However, the quantity flexible contract derived in this paper enables the retailer to satisfy even such high demand. The contract design thus enables a win-win situation for the manufacturer as well as the retailer.

Flexible and Committed Advertising Contracts in Electronic Retailing

Many advertising agents offer flexible advertising contracts wherein firms have the flexibility of adjusting their level of advertising during the advertising campaign, whereas some agents also offer committed contracts wherein firms do not have this flexibility. Based on our analysis, we would recommend that e-retailing firms choose the flexible contracts, which give them the flexibility of adjusting their advertising spending during the advertising campaign and make them better off. We also send a clear message to e-retailers that their leverage of engaging in flexible competition is contingent on the size of their operational costs. In particular, as operational costs decrease, they should be more mindful of engaging in the flexible competition. However, from the standpoint of advertising agents (e.g., Facebook.com ), because firms’ advertising efforts are lower in flexible than committed competition, we would recommend that the advertising agents adopt differential pricing schemes under the two modes of competition. In particular, the agents need to offer discounts to the e-retailers signing flexible advertising contracts so as to step up the advertising competition. In addition, our findings also provide the advertising agents with guidance on how to determine the optimal value for the discounts to be offered.

Optimal Spot Trading Integrated with Quantity Flexibility Contracts

In this study, we consider a company that uses two channels for trading: long‐term contracts and spot markets. With a quantity flexibility long‐term contract, the buyer commits to purchasing at least as much as the minimum order quantity and is able to reserve capacity with the forward contract supplier up to the maximum order quantity in each period at a predetermined price. Through the spot market, the buyer can order or sell inventory at an uncertain future spot price without quantity limitations. A fixed setup cost is incurred in each instance of buying or selling in the spot market. This study considers very general inventory‐related (not necessarily convex) costs, and demand is random following a one‐sided Pólya distribution. We introduce a concept called “non‐( K 1, K 2)‐decreasing with changeovers” and characterize the optimal trading policy in the spot market. We show that the optimal policy can be characterized by five critical points. We also characterize optimal procurement from the contracted supplier under certain conditions. Two simple, yet efficient, heuristics that yield near‐optimal results in many cases are presented as well in order to calculate procurement quantities. Moreover, we show that our results also apply to uniform demand, which is not Pólya, and numerical tests assuming uniform demand are performed to discern which factors are most important and to gain managerial insights.

Buyer-supplier currency exchange rate flexibility contracts in global supply chains

This paper analyzes a decentralized global supply chain under a newsvendor setting, where a supplier delivers a certain quantity of a single product to a buyer in accordance with the terms of a mutually agreed upon contract. This contract is signed prior to the delivery of the product and subsequent payment, thus, exposing the supply chain to the risk of currency exchange rate fluctuations. We propose two types of currency exchange rate flexibility contracts to explore the characteristics of exchange rate risk mitigation policies for the buyer and the supplier. Furthermore, we investigate the effects of the contract structures on the optimal order quantity, as well as the expected profits of both supply chain members. Our results show that the optimal order quantity of the buyer decreases when the wholesale price is uncertain due to exchange rate volatility. Also, both our proposed contracts tend to improve the expected profits of both the buyer and the supplier, when the payment is made in the supplier’s currency, indicating the desirability of adopting such contractual agreements from the perspective of both parties. On the other hand, when the payment is made in the buyer’s currency, our suggested contracts do not yield such win-win scenarios. Finally, we examine the effectiveness of availing the services of a local vendor, which is capable of satisfying any demand in excess of the quantity ordered from the foreign source with short notice, in order to mitigate the risks associated with an overseas order.

2018 French dental contracts: On the road to achieving universal dental health coverage?

Following the failure of earlier negotiations, the new French Government decided not to go ahead with a unilateral decision to define fees in the dental contracts, and to reopen the negotiations. This in a bid to satisfy the providers' requests, as well as to negotiate Emmanuel Macron's presidential campaign promise of no out-of-pocket expenses on dental prosthetics. The three stakeholders, the National Health Insurance System, Dental Trade Unions and Complementary Health Insurers, started another round of negotiations which lead to an agreement. This new convention, which will be phased in from the 1 st of April 2019, will exclude 90 % of dental procedures from out-of pocket payments for patients. Though economic models were controversial between the stakeholders, this reform is likely to engage France in a system where the dental medical divide is narrowing, quasi-universal dental coverage is achieved and policy making processes are adaptable to the evolution of evidence-based medicine and economic realities. This reform, supported by more than 95 % of the French population, is likely to serve as an example for its impact on: political campaigns; the role of comprehensive data collection systems; economic models; and adaptive policies in order to overcome barriers to reforms.

Preserving relational contract stability of fresh agricultural product supply chains

<p style='text-indent:20px;'>Since agricultural cooperatives have developed rapidly under the farmland transfer policy in China, they play an important role in the new operation pattern for China's fresh agricultural product supply chains. To enhance current agricultural supply chains' stability, we consider a three-level (farmer-cooperative-retailer) fresh agricultural product supply chain, conduct quantitative analysis of the impact of the quantity flexibility contract, and compare the impact of the relational contract with that of the quantity flexibility contract on the freshness and the profit. Our results show that a suitable relational contract can improve the freshness and increase the profit of the three-level supply chain, but cannot fully guarantee its stability. Furthermore, the government's subsidy policy can improve the relational contract stability of the fresh agricultural product supply chain by providing the protection price contract mechanism of the agricultural product and the cold chain facility subsidy contract.

Dynamic performance incentive model with supervision mechanism for PPP projects

PurposeThis study is aimed to explore the dynamic performance incentive model for a flexible PPP contract to handle uncertainties based on supervision during the long-time concession period, so as to ensure operation performance and benefits of the public sector while protecting the economic benefit of the private sector, thus avoiding unnecessary renegotiation.Design/methodology/approachThe microeconomic and principal–agent theories and relevant studies on the basic incentive model and flexible contract are fully utilized. The procedure for developing the dynamic incentive model and the assumptions about the quantitative relationships among fundamental variables or factors are first proposed. The static incentive model without incentive parameter adjustment and then the dynamic incentive model allowing incentive parameter adjustment are successively developed. Finally, the propositions regarding the valid adjustment ranges of the incentive parameter with respect to the economic, social and hybrid benefits of the public sector and the economic benefit of the private sector are suggested.FindingsThe dynamic incentive model enables to achieve a flexible contract to handle uncertainties on the PPP project to ensure the benefits of the public sector while protecting the benefit of the private sector. The economic, social and hybrid benefits of the public sector and the economic benefit of the private sectors can be respectively realized through adjusting the reward–punishment coefficient under different adjustment ranges and different importance. The incentive model is able to ensure the benefits of the public sector while protecting the benefit of the private sector by controlling the private sector's effort level unknown to the public sector.Originality/valueThe dynamic incentive model helps implement a flexible PPP contract to handle uncertainties during the operation period, thus controlling the effort level of the private sector and ensuring the benefits of the public sector while protecting the economic benefit of the sector. It enables to clarify the quantitative relationships between the operation performance, the benefits of the stakeholders, the effort level of the private sector and the reward–punishment coefficient. This study contributes to the domain knowledge of the incomplete contract theory for designing a flexible PPP contract with dynamic incentive and supervision mechanism by applying the microeconomic and principal–agent theories.

Supply Chain Coordination with a Loss-Averse Retailer and Combined Contract

This paper studies the supply chain coordination where the retailer is loss-averse, and a combined buyback and quantity flexibility contract is introduced. The loss-averse retailer’s objective is to maximize the Conditional Value-at-Risk of utility. It is shown the combined contract can coordinate the chain and a unique coordinating wholesale price exists if the confidence level is below a threshold. Moreover, the retailer’s optimal order quantity, expected utility and coordinating wholesale price are decreasing in loss aversion and confidence levels, respectively. We also find that when the contract parameters are restricted, the combined contract may coordinate the supply chain even though neither of its component contracts coordinate the chain.