Effects of Moral Hazard and Private Information on Investment Timing: An Auction Model

Abstract

This paper analyzes investment timing in the presence of agency conflicts and information asymmetries. It is assumed that an owner of an investment project (a real option) needs specialized expertise in order to make the investment. There are n firms with the required knowledge, and these "expert firms" compete about a contract that gives the contract winner the right to manage the investment. Each competitor chooses an unobserved effort that influences the probability of its investment cost level. When effort is made, each expert firm privately observes its own investment costs, but not the competitors'. The winner of the contract is the firm that (truthfully) reports the lowest investment cost.The private information problem increases the critical price of investment compared to the case of no inefficiency. When moral hazard is included in the model, the effect on the trigger value is ambiguous for n > 1. In the case in which there is one expert firm (n = 1), the moral hazard problem always mitigates the inefficiency cost due to private information. The last result is consistent with findings in Grenadier and Wang (2005).

Thermodynamics of H in Disordered Pd−Ag Alloys from Calorimetric and Equilibrium Pressure−Composition−Temperature Measurements

“…3,4 H is assumed to occupy the octahedral interstices in fcc Pdrich alloys as it does in pure Pd and which has been shown for a Pd-Au alloy. 5 Indirect evidence for this is that the inelastic vibrational frequency of H in Pd-Ag alloys is characteristic of H in octahedral sites rather than tetrahedral sites. 6 Recently, Lovvik and Olsen 7 have carried out density functional calculations which show that H prefers octahedral interstices at least up to X Ag ) 0.5.…”