Ambiguity aversion and cost-plus procurement contracts
This paper provides a positive theory about the contractual form of procurement contracts under cost uncertainty. However, while the cost of manufacture is uncertain it can be reduced by an amount depending on the extent of effort exerted by the agent. The effort exerted by the agent is not verifiab...
| Main Author: | |
|---|---|
| Format: | Working paper |
| Published: |
University of Oxford
2002
|
| _version_ | 1826260668181905408 |
|---|---|
| author | Mukerji, S |
| author_facet | Mukerji, S |
| author_sort | Mukerji, S |
| collection | OXFORD |
| description | This paper provides a positive theory about the contractual form of procurement contracts under cost uncertainty. However, while the cost of manufacture is uncertain it can be reduced by an amount depending on the extent of effort exerted by the agent. The effort exerted by the agent is not verifiable but causes disutility to the agent, hence, its extent will ultimately depend on the power of incentives built into the terms of reimbursement agreed to in the contract. The analysis in the paper explicitly models the possibility that the agent's beliefs are ambiguous and the agent is ambiguity averse. The principal finding is that the greater the ambiguity/ambiguity aversion of the agent, the lower the power of the incentive scheme incorporated in the terms of reimbursement included in the optimal contract. |
| first_indexed | 2024-03-06T19:09:19Z |
| format | Working paper |
| id | oxford-uuid:163aa10a-4557-42b4-b0b6-d1318c0b537c |
| institution | University of Oxford |
| last_indexed | 2024-03-06T19:09:19Z |
| publishDate | 2002 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:163aa10a-4557-42b4-b0b6-d1318c0b537c2022-03-26T10:30:04ZAmbiguity aversion and cost-plus procurement contractsWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:163aa10a-4557-42b4-b0b6-d1318c0b537cSymplectic ElementsBulk import via SwordUniversity of Oxford2002Mukerji, SThis paper provides a positive theory about the contractual form of procurement contracts under cost uncertainty. However, while the cost of manufacture is uncertain it can be reduced by an amount depending on the extent of effort exerted by the agent. The effort exerted by the agent is not verifiable but causes disutility to the agent, hence, its extent will ultimately depend on the power of incentives built into the terms of reimbursement agreed to in the contract. The analysis in the paper explicitly models the possibility that the agent's beliefs are ambiguous and the agent is ambiguity averse. The principal finding is that the greater the ambiguity/ambiguity aversion of the agent, the lower the power of the incentive scheme incorporated in the terms of reimbursement included in the optimal contract. |
| spellingShingle | Mukerji, S Ambiguity aversion and cost-plus procurement contracts |
| title | Ambiguity aversion and cost-plus procurement contracts |
| title_full | Ambiguity aversion and cost-plus procurement contracts |
| title_fullStr | Ambiguity aversion and cost-plus procurement contracts |
| title_full_unstemmed | Ambiguity aversion and cost-plus procurement contracts |
| title_short | Ambiguity aversion and cost-plus procurement contracts |
| title_sort | ambiguity aversion and cost plus procurement contracts |
| work_keys_str_mv | AT mukerjis ambiguityaversionandcostplusprocurementcontracts |