Self Selection and market power in risk sharing contracts

Prasad, Kislaya; Salmon, Timothy C.

doi:10.1016/j.jebo.2013.03.007

Cited by 14 publications

(6 citation statements)

References 27 publications

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“…As examples, impulsive delay discounting predicts substance abuse, gambling, and various health and safety choices, such as whether to eat breakfast, apply sunscreen, maintain a healthy body weight, and wear a seatbelt (Alessi & Petry, 2003;Daugherty & Brase, 2010;Kollins, 2003;Reimers, Maylor, Stewart, & Chater, 2009), as well as financial decisions, such as retirement age (Bidewell, Griffin, & Hesketh, 2006). In addition, inconsistencies in decision-making-specifically in the context of risky scenarios-have been associated with poor financial outcomes (Jacobson & Petrie, 2009;Prasad & Salmon, 2013).…”

Section: Discussionmentioning

confidence: 99%

Delay and Probability Discounting as Candidate Markers for Dementia: An Initial Investigation

Lindbergh

Puente

Gray

et al. 2014

Archives of Clinical Neuropsychology

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The present study investigated delay discounting and probability discounting-behavioral economic indices of impulsivity and risk proneness, respectively-in 39 healthy older adults and 25 older adults with mild cognitive impairment (MCI). Relative to the healthy group, it was hypothesized that older adults with MCI would display greater levels of impulsivity, risk proneness, and response inconsistency. The MCI group was found to display a unique delay discounting profile characterized by increasing impulsivity with decreasing reward magnitude, such that cognitively impaired older adults were significantly more impulsive than healthy controls at the small reward magnitude. The two groups exhibited similar levels of probability discounting, though older adults with MCI were significantly less consistent in their risk preferences. The present findings shed light onto decision-making in pre-dementia disease stages and suggest that discounting performance holds potential to complement early diagnostic instruments, likely due to pathophysiological processes in relevant brain regions.

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Section: Discussionmentioning

confidence: 99%

Delay and Probability Discounting as Candidate Markers for Dementia: An Initial Investigation

Lindbergh

Puente

Gray

et al. 2014

Archives of Clinical Neuropsychology

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“…In contrast to these studies, our experiment is designed to study implications for contract theory.3 Other studies have investigated the effect of reference points on labor market outcomes, such as effort provision and performance(Abeler et al, 2011, Bartling et al, 2015, De Quidt et al, 2017, Ockenfels et al, 2015, labor supply(Fehr and Goette, 2007), and perceived attractiveness of labor contracts(De Quidt, 2018). These studies do not point at the importance of reference points for sorting into incentive schemes in risky environments.4 Not controlling for the riskiness of the environment, we would observe that risk averse workers are likely to receive stronger incentives, because they tend to sort into relatively safe environments Prasad and Salmon (2013). conduct a lab experiment with stated-effort to shed light on endogenous matching.…”

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confidence: 80%

Reference points and the tradeoff between risk and incentives

Dohmen¹,

Non²,

Stolp³

2021

Journal of Economic Behavior & Organization

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“…Conversely, diversified firms are often able to use their market power to chip away incrementally at contract terms and conditions in ways to benefit themselves economically (Prasad & Salmon, 2013) Study that accounted for sales, net income and total assets growth Seller's will experience faster growth through the terms and conditions of the contract to request contract changes, which increase contract costs (Hasan et al, 2017), pricing of labor (Pindyck, 1988) and extend schedule projections. As R&D and NPD projects develop, engineering requirements often change in unexpected ways (Adler et al, 2016) which, if approved by the DOD, drive up the total cost and labor hours required to complete the contract, thereby resulting in better financial performance for the supplier.…”

Section: Contractual Diversification Advantagementioning

confidence: 99%

Contractual Diversification Advantage: A Relational View of the Link Between Supplier Diversification and Performance

Pittz,

Adler,

Alexiou

et al. 2024

Journal of Small Business Strategy

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Problem Definition The purpose of this research is to examine the effect of diversification on interfirm relationships. Given how extensively firms develop key relationships with customers, suppliers, and other stakeholders, understanding the role that interfirm (relational) strategies are affected by diversification likely will be quite informative. This is particularly true of small businesses, which are not as frequently studied by strategy scholars. A relational perspective suggests that investments in relationship-specific assets, substantial knowledge exchange, combinations of complementary resources and capabilities, and effective governance structures between supply/buyer firms in a partnership dyad can generate relational rents. Methodology/Results A foundational predication within our research is that firm diversification will lead to more advantageous relationships with business partners, a hypothesis that we test through contract performance. In our study, we review 240 Research & Development and New Product Development contracts with supplier firms and the US Department of Defense that incorporated some form of risk-sharing between the buyer and supplier. We find that diversified firms engage in contracting with suppliers in a way that provides an advantage over their single-segment competitors in terms of total contract cost, the number of change proposals by engineers in contract work, and longer durations of government contracts. We also find that diversified small firms receive more of a benefit than their larger counterparts in terms of contracting advantage. Managerial Implications Based on our findings, it is evident that managers of diversified firms provide advantage to their firms by being more accustomed to complex contractual arrangements than their single-segment firm counterparts. Our findings also suggest that enhanced opportunities for organizational learning are available to diversified firms who engage in contractual relationships. Relational contracts that feature risk-sharing between buyers and suppliers provide space for joint-learning, and it is likely that managers of diversified firms have more experience navigating these risk-sharing relationships. This is particularly influential in a dynamic marketplace as firms prioritize innovation and adaptability in order to thrive.

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Self Selection and market power in risk sharing contracts

Cited by 14 publications

References 27 publications

Delay and Probability Discounting as Candidate Markers for Dementia: An Initial Investigation

Delay and Probability Discounting as Candidate Markers for Dementia: An Initial Investigation

Reference points and the tradeoff between risk and incentives

Contractual Diversification Advantage: A Relational View of the Link Between Supplier Diversification and Performance

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