Simple Contract Research Articles

Pricing and advertisement in a manufacturer–retailer supply chain

We use a game theoretical approach to study pricing and advertisement decisions in a manufacturer–retailer supply chain when price discounts are offered by both the manufacturer and retailer. When the manufacturer is the leader of the game, we obtained Stackelberg equilibrium with manufacturer’s local allowance, national brand name investment, manufacturer’s preferred price discount, retailer’s price discount, and local advertising expense. For the special case of two-stage equilibrium when the manufacturer’s price discount is exogenous, we found that the retailer is willing to increase local advertising expense if the manufacturer increases local advertising allowance and provides deeper price discount, or if the manufacturer decreases its brand name investment. When both the manufacturer and retailer have power, Nash equilibrium in a competition game is obtained. The comparison between the Nash equilibrium and Stackelberg equilibrium shows that the manufacturer always prefers Stackelberg equilibrium, but there is no definitive conclusion for the retailer. The bargaining power can be used to determine the profit sharing between the manufacturer and the retailer. Once the profit sharing is determined, we suggest a simple contract to help the manufacturer and retailer obtain their desired profit sharing.

On the Market for Venture Capital

We propose a theory of the market for venture capital that links the excess return to venture equity to the scarcity of venture capitalists (VCs). High returns make the VCs more selective and eager to terminate nonperforming ventures because they can move on to new ones. The scarcity of VCs enables them to internalize their social value, and the competitive equilibrium is socially optimal. Moreover, the bilaterally efficient contract is a simple equity contract. We estimate the model for the period 1989–2001 and compute the excess return to venture capital, which turns out to be 8.6 percent. Finally, we back out the return of solo entrepreneurs, which is increasing in their wealth and ranges between zero and 3.5 percent.

INSTITUSIONALISASI AKAD MUAMALAH (Studi Transformasi tentang Proses dan Alur Migrasi Akad Personal ke Akad Institusi dalam Perbankan Syariah)

Islamic contract mechanism, as it's called al-'aqd al-muamalah ) was done as personal contract. The emerging of islamic bank makes it transfrormed being an institution contract, that changes a simple contract being a rigid one, because a position of the islamic bank. This process is called by "institutionalization", where it could be realized without external power which support that process, such as policy power who arranges by rules, internal resources who prepars software, hardware and brainware, economi power who supports market acceptance analysis, social power who supports accelerated improvement and inovation, and ijtihad power who supports syariah compliance. The three latest are research focus and by social economic approach and qualitative analysis model, this research finds that the institutionalization of islamic contract has been transforming for a long-long time ago and using two ways scientifically integration process, economics and syariah (islamic law), especially al-fiqh al-mu'amalah.

Supply Chain Contracting Under Competition: Bilateral Bargaining vs. Stackelberg

We analyze contracting behaviors in a two‐tier supply chain system consisting of competing manufacturers and competing retailers. We contrast the contracting outcome of a Stackelberg game, in which the manufacturers offer take‐it‐or‐leave‐it contracts to the retailers, with that of a bargaining game, in which the firms bilaterally negotiate contract terms via a process of alternating offers. The manufacturers in the Stackelberg game possess a Stackelberg‐leader advantage in that the retailers are not entitled to make counteroffers. Our analysis suggests that whether this advantage would benefit the manufacturers depends on the contractual form. With simple contracts such as wholesale‐price contracts, which generally do not allow one party to fully extract the trade surplus, the Stackelberg game replicates the boundary case of the bargaining game with the manufacturers possessing all the bargaining power. In contrast, with sophisticated contracts such as two‐part tariffs, which enable full surplus extraction, the two games lead to distinct outcomes. We further show that the game structure being Stackelberg or bargaining critically affects firms' preferences over contract types and thus their equilibrium contract choices. These observations suggest that the Stackelberg game may not be a sufficient device to predict contracting behaviors in reality where bargaining is commonly observed.

Optimal Long-Term Supply Contracts with Asymmetric Demand Information

We consider a manufacturer selling to a retailer with private demand information arising dynamically over an innite time horizon. Under a backlogging model, we show that the manufacturer’s optimal dynamic long-term contract takes a simple form: in the rst period, based on her private demand forecast, the retailer selects a wholesale price and pays an associated upfront fee, and, from then on, the two parties stick to a simple wholesale price contract with the retailer’s chosen price. We also show the structure of the optimal long-term contract under lost sales combines wholesale prices with options that coordinate the supply chain.

Delegation vs. Control of Component Procurement Under Asymmetric Cost Information and Simple Contracts

A manufacturer must choose whether to delegate component procurement to her tier 1 supplier or control it directly. Because of information asymmetry about suppliers' production costs and the use of simple quantity discount or price-only contracts, either delegation or control can yield substantially higher expected profit for the manufacturer. Delegation tends to outperform control when (1) the manufacturer is uncertain about the tier 1 supplier's cost and believes that it is likely to be high; (2) the manufacturer and the tier 1 supplier know the tier 2 supplier's cost or at least that it will be high; (3) the manufacturer has an alternative to engaging the tier 1 and tier 2 suppliers, such as in-house production; and (4) the firms use price-only contracts as opposed to quantity discount contracts. These results shed light on practices observed in the electronics industry.

OPTIMAL CONTRACTS WITH ENFORCEMENT RISK

I build a model where potentially biased judges verify complex states by interpreting an imperfect signal whose noise captures factual ambiguities. In a sales and a financial transaction I show that judicial biases amplify and distort factual ambiguities, creating enforcement risk. To insure against such risk, parties write simple noncontingent contracts that optimally protect the party that is most vulnerable to judicial error. These results shed light on the empirical association between law and finance and rationalize salient features of real world enforcement regimes.

Calibrated Incentive Contracts

This paper studies a dynamic agency problem which includes limited liability, moral hazard, and adverse selection. The paper develops a robust approach to dynamic contracting based on calibrating the incentive properties of simple benchmark contracts that are attractive but infeasible, due to limited liability constraints. The resulting dynamic contracts are detail-free and satisfy robust performance bounds independently of the underlying process for returns, which need not be i.i.d. or even ergodic. [PUBLICATION ABSTRACT]

Supply chain coordination by risk sharing contracts under random production yield and deterministic demand

From numerous contributions to literature we know that properly designed contracts can facilitate coordinated decision making of multiple actors in a supply chain (SC) so that efficiency losses for the whole SC can be avoided. In a newsvendor-type SC with stochastic demand it is well-known that the double marginalization effect hampers the simple wholesale price contract to achieve coordination. More complex contracts however can bring about coordination, especially those which enable appropriate sharing of risks between the actors. While the effectiveness of risk sharing contracts is well understood for SC situations with random demand and reliable supply, less is known about respective problems if demand is deterministic but supply is unreliable due to random production yield. This paper shows how in a buyer-supplier SC the distribution of risks affects the coordination of buyer's ordering and supplier's production decision in a basic random yield, deterministic demand setting. Both parties are exposed to risks of over-production or under-delivery, respectively, if a simple wholesale price contract is applied. The resulting risk distribution always impedes SC coordination. However, more sophisticated contract types which penalize or reward the supplier can change risk distribution so that SC coordination is possible under random yield. Additionally, it is proven that the wholesale price contract will guarantee SC coordination if the supplier has a second (emergency) procurement source that is more costly, but reliable. Moreover, it is shown that under wholesale price contracts it can be beneficial to utilize this emergency source even if it is unprofitable from a SC perspective. However, if such an emergency option is available to the buyer as opposed to the supplier, a wholesale price contract will not be able to coordinate the SC.

Individual Supplier Behavior and the Effectiveness of Revenue Sharing and Wholesale Contracts: A Behavioral Study

We consider under what conditions a revenue sharing contract is most effective at improving system efficiency relative to a simple wholesale price contract. Using a behavioral laboratory approach, we investigate how a supplier's individual differences in risk aversion and fairness concerns influence how they set the pricing parameter(s) of a contract. We find that risk-neutral self-interested suppliers were able to improve the system and their own profits significantly under revenue sharing compared to wholesale pricing. However, individual behavioral factors of risk aversion or fairness preferences often made the more complicated revenue sharing contract either ineffective or unnecessary. Specifically, given a fairness-minded supplier, the simple wholesale price contract is comparably efficient to the revenue sharing contract set by a risk-neutral supplier and we find the coordinating contract is unnecessary. Conversely, given a strongly risk-averse supplier with no concerns for fairness a revenue sharing contract is ineffective in overcoming double marginalization.

On and Off Contract Remedies Inducing Cooperative Investments

A party dissatisfied with the contractual performance of a counterparty is typically able to pursue a variety of legal recourses. Within this apparent variety are two fundamental alternatives. The aggrieved party may (i) ‘affirm’ the contract and seek money damages or specific performance, or (ii) ‘disaffirm’ the contract with the remedy of rescission and seek restitution. This simple dichotomy of contract remedies applies broadly in both common law and civil law practice. We show here that this remedial regime allows parties to write simple contracts that induce first-best cooperative investments.

Hold Up Under Costly Litigation and Imperfect Courts of Law

Most of the incomplete contracting literature assumes courts of law perfectly distinguish verifiable from nonverifiable variables and that only claims related to the former can be brought to courts. We consider a more realistic enforcement technology: Parties are able to sign “vague contracts” and, by spending resources on litigation, get the court to hear and rule on cases even if they have bogus grounds and/or the claim is related to nonverifiable variables. We reexamine the results obtained in the literature on contractual solutions to the hold-up problem. In contrast to Che and Hausch (1999 “Cooperative Investment and the Value of Contracting,” 89 American Economic Review 125–47.), we find that a simple contract can be valuable and even the first-best might be achievable in the cooperative investment case. For the case of selfish investment, the efficient result of Edlin and Reichelstein (1996 “Holdups, Standard Breach Remedies, and Optimal Investment,” 86 American Economic Review, 478–501.) does not hold in general if attention is restricted to simple contracts. Our model predicts that, if allowed to do so, the parties will—by choosing the appropriate contract—manipulate the litigation costs and court rulings in opposite directions, depending on the nature of investment. (JEL: D20, D78, K10, K40, L22)

Public Forecast Information Sharing in a Market with Competing Supply Chains

Studying the operational motivation of a retailer to publicly announce his forecast information, this paper shows that by making forecast information publicly available to both his manufacturer and to the competitor, a retailer is able to credibly share his forecast information—an outcome that cannot be achieved by merely exchanging information within the supply chain. We model a market comprised of an incumbent supply chain facing the possible entry of a competing supply chain. In each supply chain, a retailer sources the product from a manufacturer, and the manufacturers must secure capacity prior to the beginning of the selling season. Due to the superior knowledge of the incumbent retailer about the consumer market, he privately observes a signal about the consumer’s demand, which may be high or low. We first confirm that the retailer cannot credibly share this forecast information only with his manufacturer within the supply chain, since, regardless of the observed signal, the retailer has an incentive to inflate to induce the manufacturer to secure a high capacity level. However, when the information is also shared with the competitor, the incumbent retailer faces the trade-off between the desire to secure an ample capacity level and the fear of intense competition. By making information publicly available, it is possible to achieve truthful information sharing; an incumbent retailer observing a high forecast benefits from the increased capacity level to such an extent that he is willing to engage in intense competition to prove his accountability for the shared information. On the other hand, an incumbent retailer with a low forecast is not willing to engage in intense competition in exchange for the high level of capacity; thus, he truthfully reveals his low forecast to weaken competition. Moreover, we demonstrate that this public information sharing can benefit all the firms in the market as well as consumers. In addition, we show that compared to the advance purchase contract, all the firms except the incumbent manufacturer can be better off using public information sharing under a simple wholesale price contract. This paper was accepted by Yossi Aviv, operations management.

Exit options in incomplete contracts with asymmetric information

This paper analyzes bilateral contracting in an environment with contractual incompleteness and asymmetric information. One party (the seller) makes an unverifiable quality choice and the other party (the buyer) has private information about its valuation. A simple deterministic exit option contract, which allows the buyer to refuse trade, achieves the first-best in the benchmark cases where either quality is verifiable or the buyerʼs valuation is public information. But, when unverifiable and asymmetric information are combined, deterministic contracts are necessarily inefficient. The first-best can be achieved, however, through simple message games with stochastic terms of trade as off-equilibrium outcomes.

The impact of repeated interactions on supply chain contracts: A laboratory study

Abstract In this laboratory study, we investigate the interactive behaviors that develop over a perceived long-term contractual relationship. Specifically, three types of contracts are examined under a two-echelon supply chain setting with stochastic demand: wholesale price contracts, buyback contracts and revenue-sharing contracts. The supply chain contracting theory has demonstrated that the simple linear price contract is inefficient; whereas the latter two contracts can coordinate the channel through risk-sharing, and they are mathematically equivalent. We propose an experimental design that controls for individual decision biases to isolate the behavioral impact of repeated negotiations. Our experimental results indicate that participants systematically deviate from predictions by the normative model that assumes a one-shot interaction between self-interested players. We find that when future opportunities to punish are available, social preferences for fairness and reciprocity are reinforced; and reputation-building behaviors are motivated to achieve long-term economic benefits. As a result, the performance of the overall supply chain is enhanced. Moreover, we observe that buyback contracts behave differently from revenue-sharing contracts by inducing higher order quantities over time.

Volume discounting coordinates a supply chain effectively when demand is sensitive to both price and sales effort

In this paper, we use a simple and parsimonious model to investigate the performance of volume discounting schemes (hereafter “[VD]”) in a supply chain where the market demand is sensitive to both retail price “p” and sales effort “e” — hereafter called a “(p,e)-channel.” The problem is analyzed as a manufacturer-leading Stackelberg game. We first present, for the deterministic-system-parameter situation, contract-designing procedures under two contract formats; namely, a “regular” version of [VD] (hereafter “[RVD]”) and a “continuous” version of [VD] (hereafter “[CVD]”). Our solutions show that [RVD] cannot perfectly coordinate this (p,e)-sensitive channel; moreover, very often [RVD] leads to a lower channel efficiency than the simple price-only contract. In contrast, we show that [CVD] leads to perfect channel coordination — a significant result since most contract formats have been shown in the literature to be unable to coordinate a (p,e)-channel. Next, we consider the more realistic situations in which the manufacturer is uncertain about one of the system parameters — specifically, either the market size “a” or the effort cost “η”. Our results show that, if Manu is uncertain about a, [RVD] becomes useless but the manufacturer can still use [CVD] to benefit himself. When the manufacturer is uncertain about η, [CVD] remains useful (as expected); however, surprisingly, [RVD] can outperform [CVD] when both the mean value and the uncertainty of η are sufficient high. These results underline the necessity of evaluating a contract format under various forms of system-parameter uncertainties — often at the expense of analytical tractability.

Production scheduling with subcontracting: the subcontractor’s pricing game

This paper studies a two-stage game with a manufacturer and a subcontractor who are faced by a production scheduling problem. The manufacturer has a set of jobs to process, a subset of which can be subcontracted to the subcontractor to reduce the tardiness cost. In the game, the subcontractor makes the first decision to ask for a unit price of his machine time to be used by the manufacturer, and then the manufacturer follows to decide which jobs to be subcontracted to process and how the production scheduling is made. We analyze the game and derive how the subcontractor can optimize the unit price to maximize his profit. We then investigate the performance of such a simple contract from the viewpoint of coordination, and propose two other contracts that can achieve coordination between the two players.

Mortgage Delivery to the Secondary Market when Interest Rates are Falling

A borrower whose loan is committed to the securitization process has the ability and incentive to switch lenders if market rates drop during the loan origination period, which creates significant exposure for primary lenders. A simple secondary market contract innovation we call a mortgage rate drop guarantee (MRDG) could shift this risk to the securitizers who represent portfolio investors. Our simulation results indicate this shifting would have improved the risk/return distribution faced by originators without damaging the risk/return position of securitizers during our 1977–2010 sample period. Assuming conservative loan lives and origination periods, and competitive lending markets, the risk reduction features of MRDGs could also have generated significant interest savings for borrowers.

Duality in Contracting

In a linear contracting environment the Fenchel transform provides a complete duality between the contract and the information rent. Through an appropriate generalised convexity this can be extended to provide a complete duality in the supermodular quasilinear contracting environment that covers the majority of applications. Using this framework, we provide a complete characterization of the allocation correspondences that can be implemented by a principal in this environment. We also address the question of when an allocation can be implemented by a menu of simple contracts. Along the way, a supermodular envelope theorem is proved, somewhat different in nature to the Milgrom Segal result.

CASE REPORT: RECIDIVA PELVICA DI ETP RETTO CON INFILTRAZIONE URETERALE, TRATTAMENTO E FOLLOW-UP

Introduction: The authors present the clinical case of a woman subjected to anterior resection of the rectum with recurrence involving the pelvic the right ureter occurred after about 8 years from surgery. Patients and methods: M.R. woman of 79 years, came to our observation for pain type sciatica. The patient has a history of resection front of the rectum for adenocarcinoma (T3N1Mx, G2) carried out 8 years first with 5-year follow-up negative for recurrent disease. The Rx lumbosacral spine was negative, while the ultrasound of the abdomen showed an hydronephrosis second degree dependent on the right kidney. Yes therefore performs a CT abdomen demonstrating "a level sacral promontory a solid education with a diameter of 30 mm, inhomogeneous density for nodular calcification, which is located between the common iliac arteries and infiltration of the right ureter, which appears stenosis, upstream of the stenosis, there are signs of uretero-hydronephrosis. Outcomes of resection of the rectum without evidence of loco-regional recurrence or of iliac lymphadenopathy. The tumor markers are in normal limits. Assuming a radical treatment you Exploratory laparotomy: for the small pelvis is a neoformation of about 5 cm in diameter invading the distal right ureter and ileal loop. Proceed to resection stretch of ureter infiltrated by the tumor and practiced direct suture catheter type on pig-tail. Also practiced resection involved in the neoplastic process of the loop ileal. Not possible remove the entire tumor infiltrating the plan because sacral. The post-operative care is regular, the patient is resigned in XII postoperative day. Histopathological examination identifies the lesion as relapse of adenocarcinoma of the large intestine. Results: The follow-up at 12 months is negative for disease progression. Conclusion: Colorectal tumors in advanced stage (upper stage C2, III) even after treatment of resection and adjuvant chemotherapy regional recurrences may spot the medium to long term no increase in common biohumoral Markes. These recurrences may affect the urinary system requiring treatment diligent in order to prevent permanent kidney damage. Strategies therapeutic present in a clinical setting and in the literature are numerous and vary depending on the extension of recidivism. They range from simple derivatives contracts (nephropielostomy), the resection-anastomosis of ureter involved, the en bloc resection recurrence of the mass, the debulking, the pelvic exenteratio.