Now showing 1 - 10 of 11
  • Publication
    On the Firms’ Decision to Hire Academic Scientists
    (University College Dublin. School of Economics, 2020-03) ;
    Firms hire scientists to increase their absorptive capacity and generate new knowledge and innovations. In this paper, we analyse a firm’s optimal contracting decisions when scientists have differing tastes for science. The contracted scientist engages in multitasking following her own academic agenda and the firm’s agenda and each task delivers distinct outcomes. Our setting disentangles the productivity and absorptive capacity effects for the firm as well as the preference and opportunity costeffects for the scientists. The productivity effect refers to a scientist’s contribution to profits by improving efficiency or by developing new products. The absorptive capacity effect relates to the ability of the hired scientist to assimilate the knowledge produced elsewhere for the benefit of the firm. The preference effect reflects the fact that scientists, unlike other knowledge workers, have a taste for science and accept lower wages when allowed to pursue a personal academic agenda. The opportunity cost effect captures the fact that top scientists have better options in academia. In a baseline model we show that firms do not reward academic outcomes and only hire top scientists when academia is a poor alternative to joining the private sector. We then extent the analysis allowing for asymmetric information about the scientists’ taste for science, a nominal effort constraint and the lack of complementarity between research activities.
  • Publication
    Procurement contracts under limited liability
    (Economic and Social Studies, 2003)
    This paper analyses procurement when contractors have limited liability and when the sponsor cannot commit to any specific form of future negotiation. It shows that introducing limited liability enhances competition and thus the likelihood of bankruptcy. Among efficient auctions in which only the winner gets paid, the commonly used first price auction is shown to give the lowest probability of bankruptcy. Finally, it shows that the characterisation of a mechanism minimising the project’s cost results from trading-off bankruptcy costs with informational rents.
  • Publication
    Addressing Private Practice in Public Hospitals
    (University College Dublin. School of Economics, 2020-05) ;
    This paper proposes a theoretical analysis of the private provision of care within public hospitals and assesses its impact on the quality and cost of healthcare. We also capture this policy’s impact on the number of outpatients that are seen and the number that are cured. We show that the private income gathered by consultants engaged in dual practice has a negative impact on the level of care being provided as it incentivises consultants to focus on the number of patients seen. However, the private fees generate lower healthcare costs. Hence the removal of private practice in public hospitals is only optimal when the benefit associated with curing patients is large enough. The impact on waiting lists is ambiguous. Considering that consultants may differ in their ability, we show that the optimal contracts enable senior doctors (with more experience) to get a greater private income than junior doctors when discrimination between senior and junior physicians is allowed. When discrimination is not allowed, it is optimal to offer a uniform contract. Proposing distinct contracts, as currently done in Ireland, increases healthcare costs due to incentive compatibility issues.
  • Publication
    Optimal Contracts for Renewable Electricity
    (University College Dublin. School of Economics, 2019-09) ;
    Companies are increasingly choosing to procure their power from renewable energy sources, with their own set of potential challenges. In this paper we focus on contracts to procure electricity from renewable sources that are inherently unreliable (such as wind and solar). We determine the contracts that minimize the cost of procuring a given amount of renewable energy from two risk-averse generators. We contrast outcomes arising when investments are set in centralised and decentralised settings, with the absence of reliability addressed by either issuing orders in excess of what is needed or by investing in improved reliability. Our results suggest that future contracts may be geared towards a greater reliance on order inflation and lower investments in reliability as the cost of renewable energy keeps falling. The implications of these results for grid congestion and electricity spot market prices should be of interest to regulators and transmission system operators.
  • Publication
    Optimal Contract Orders and Relationship-Specific Investments in Vertical Organizations
    (University College Dublin. School of Economics, 2013-10) ;
    This paper characterizes the optimal contracts issued to suppliers when delivery is subject to disruptions and when they can invest to reduce such a risk. When investment is contractible dual sourcing is generally optimal because it reduces the risk of disruption. The manufacturer (buyer) either issues symmetric contracts or selects one supplier as a major provider who invests while the buffer supplier does not. An increased reliance on single sourcing or on a major supplier is optimal under moral hazard. Indeed, we show that order consolidation increases the manufacturer’s profits because it serves as an incentive device in inducing investment.
  • Publication
    Optimal Sourcing Orders under Supply Disruptions and the Strategic Use of Buffer Suppliers
    (University College Dublin. School of Economics, 2014-10) ;
    This paper analyses procurement from two, risk-averse, suppliers who are responsible for the timely delivery of some inputs. Their production is subject to inherent disruptions. We characterize the optimal contracts when suppliers can invest to lower the risk of delays that are costly to the manufacturer. When investment is contractible, we show that issuing asymmetric contracts, whereby the buyer is more heavily dependent on one supplier, is optimal as the cost associated with supply disruptions increases. When investment is not contractible, we show that large orders can be used as an incentive devise. Thus, the strategy consisting of selecting one supplier as a main producer and another as a buffer has further desirable advantages under moral hazard.
  • Publication
    Optimal Management of Supply Disruptions when Contracting with Unreliable, Risk-averse, Suppliers
    (University College Dublin. School of Economics, 2017-06) ;
    This paper investigates the optimal management of supply disruptions by a manufacturer who uses order inflation and/or investments in process reliability when contracting two risk-averse suppliers. We consider that these investments can be subject to moral hazard. Technically we solve a newsvendor optimization problem using a random capacity model of disruption. In such a model, the order size does not affect the average production but impacts the probability of disruption. When investments are verifiable we show that the manufacturer is more inclined to invest in the suppliers’ reliability and then refrain from using order inflation when the suppliers’ production costs and the cost of disposing of unwanted inputs are large. When investments are not verifiable we show that the order sizes can be used strategically as incentive devises due to the suppliers’ sensitivity to payoff dispersion. We show that the manufacturer does not always increase his reliance on order inflation and face less reliable suppliers once we introduce moral hazard. In some instances he induces suppliers to undertake larger investments in reliability by increasing the order size. In other instances he is able to reduce his reliance on order inflation.
  • Publication
    Optimal IPO design with informed trading
    (University College Dublin; School of Economics, 2007-05) ;
    We characterize optimal IPO design in the presence of distinct adverse selection problems: one affecting the IPO stage and one arising in the after-market. Allocating shares to an investor with superior information in the after-market depresses the share’s value to less informed investors. However, because it facilitates truthful interest report at the IPO stage it increases the expected offer price provided disadvantaged investors are suffciently unlikely to flip their share. We compare the book-building's outcome to that of uniform price auction. The auction can enhance the expected offer price only if it systematically allocates a share to the strategic trader.
  • Publication
    Auctioning horizontally differentiated items
    (University College Dublin. School Of Economics, 2005-12-08)
    This paper analyses strategic market allocation by two auctioneers holding substitutes. It characterizes both the cooperative and competitive outcomes. Under cooperation or competition with close substitutes, bidders are allocated according to the expected total surplus each generates. This market division is efficient if and only if the distribution of bidders' tastes is not skewed. If skewed, reserve prices distort participation towards the least preferred item. For greater degrees of product differentiation competition leads to multiple equilibria. Finally, competition with close substitutes sellers leave participation rents to their weakest bidder. They do not in other cases, whether they compete or cooperate.
  • Publication
    A dynamic model of cross licensing
    (University College Dublin. School Of Economics, 2004-11-05) ;
    In sectors with cumulative and complementry technologies, some rms build patent portfolios in order to block their competitors' access to the technology and/or to negociate cross licensing agreements. We propose a dynamic model that captures this behaviour in an integrated duopoly where the rms invest successively in upstream patentable technologies and downstream marketable products. We study the impact of legal patent strength on competition and investment. We then consider two alternative settings. One where the rms cross license or pool their patents and another where the patent strength is restricetd. We verify whether and when such alternatives are socially efficient.