Contracts capture an agreement between two parties to exchange a resource in the future (ex-ante), however the future is not certain. Only after the event has happened, might the two parties compare the resources they have received to what they expected (ex-post). Entering into a contract with unknowns gives rise to incomplete contracts theory, the focus of which includes the study of human behavior. Relational contracting is currently being studied as a method of reducing the transaction costs and incompleteness of contracts. Using case studies, this research aimed to reach a conclusion regarding why certain contractual projects run over budget. Overruns are often related to a variation agreement that is incomplete and open to interpretation. Understanding what the issues are and how to mitigate contractual risks was thus a key focus of this research. The research examined two industries - construction and IT. From the case studies, 16 interviews were conducted and 12 contracts reviewed. The least concern for all the parties was disputes, as the parties find solutions to address issues not considered when drafting contracts. Industry specific experience and knowledge is needed to mitigate some unknown contractual risks, however. Relational contracting was also very evident in resolving issues outside of a contract. Further studies into ancillary contracts will reveal more insight into behavioural and relational contracting. / Dissertation(MBA)--Gordon Institute of Business Science, University of Pretoria,2018. / Gordon Institute of Business Science (GIBS) / MBA / Unrestricted

The first chapter of this thesis considers a contractual principal-agent relationship in an unstable environment. The players are uncertain whether repeated interaction is possible. I examine the role that the deliberate choice of an incomplete (non-verifiable and unenforceable) contract plays in signalling stability and trust. In this model, contractors may privately observe shocks that force them to end the relationship after the current period. Complete (verifiable) contracts, which are assumed to be feasible, ensure cooperation in compliance with the contract. With incomplete contracts, the players make themselves vulnerable to exploitation by their partners. But if cooperation occurs notwithstanding, the contractors update their beliefs about each other’s willingness to interact again. When the agent observes that her partner and herself are able to continue the relationship, she undertakes a non-contractible, mutually beneficial investment. The second chapter is based on the theory by Hart and Moore (QJE, 2008) that regards contracts as reference points for feelings of entitlement. Parties’ ex post performance depends on whether they receive what they feel entitled to, which is assumed to be the best possible outcome permitted by the contract. Consequentially, there exists a trade-off between contractual flexibility (agreement on a price interval) and rigidity (agreement on a single price). Hart and Moore do not analyse the role that third party contract enforcement plays for parties’ feelings of entitlement, shading on performance and contract choice. I demonstrate that Hart and Moore’s results rely on a number of assumptions that can be challenged when incorporating litigation into the model. They assume that trade is voluntary but renegotiation is prohibited. I argue that either trade is voluntary but renegotiation is possible or courts compel parties to trade according to the contract. In the former scenario, fixed price contracts may not act as reference points and the parties feel entitled to the best possible outcomes from renegotiation. In the latter scenario, contracts may act as reference points because of the option of contract enforcement. However, potential flexibility incorporated in the contract is lost. The third chapter provides an experimental examination of the effect of contract enforcement on contractors’ reference points for feelings of entitlement. Previous experiments by Fehr, Hart and Zehnder (AER 2011) analyse and support the theory by Hart and Moore (QJE, 2008) that contracts are reference points. Both theory and experiments ignore the role of contract enforcement for contractors’ feelings of entitlement. I replicate and confirm Fehr, Hart and Zehnder’s baseline experiment. I also run an additional treatment in which buyers can offer sellers more or less favourable prices than specified in the contract, whereas sellers can request enforcement of contracts as written. I find that contract enforcement matters, without being invoked, for sellers’ punishment behaviour through feelings of entitlement. Without explicit contract enforcement, flexible contracts (agreement on a price range instead of a single price) leave sellers feel entitled to the best possible price permitted by the contract. However, buyers rarely offer such a price which leads to disappointment and punishment. With the option of contract enforcement, sellers feel entitled to the price which the court would enforce, even if it is equally unfavourable than in the no court treatment. The presence of the court provides an outside validation for which prices are reasonable and thereby limits disappointment and punishment.

Abstract In an ideal world, the agents would write a contingent contract specifying exactly which outcome is to be implemented in each state. However, the bounded rationality, the contracting agents may be unable to define ex ante the contingencies, and the transaction costs, the costs result from the difficulty of foreseeing contingencies, writing and enforcing contract, will lead to R&D cooperative contracts incomplete essentially. When R&D cooperative contracts are incomplete, the contracting agents face the hazard of ex post opportunistic behavior: each agent may engage in inefficient R&D investment in an attempt to ¡§hold up¡¨ other agents and to obtain a large share of the available quasi-rents. The purposes of this dissertation are to show that the mechanism design to the hold-up problem may implement in incomplete R&D cooperative contracts. In chapter II, we assume that the agents commit not to renegotiate ex post and set up a sequential mechanism. Under this sequential mechanism, the seller (university) sends massages (seller¡¦s true type) to the buyer (firm) who receives the massages and decides whether he will challenge them. The monetary transfer from the buyer to the seller and the quality of trade are the function of agents¡¦ true type. The great merit of this mechanism is that the seller and the buyer play the subgame perfect equilibrium in which both of them announce truthfully. We release the assumption that the contracting agents commit not to renegotiate ex post in chapter III. Under the current legal system, there is nothing to stop buyers or sellers to prevent renegotiation of their original contract. More importantly, the agents will rationally anticipate any renegotiation and this will change the equilibrium strategies of the mechanism itself. According to proposition 3-2, we demonstrate that the direct-revelation mechanism with Rubinsteinian bargaining game induced buyer and seller both announcing honestly but the R&D investment offered by agents were lower than the first best. To avoid the effect generated by renegotiation, some economists argued that the contract in which either buyer or seller has all the ex post bargaining power can induce efficient investment, and thus can implement the first best. This argument contrasts to Aghion and Tirole(1986), for they argued that whether the buyer or the seller should own the innovation hinged on the marginal efficiency of the buyer¡¦s investment compared with that of the seller¡¦s effort. Hence, we accept the property rights concepts proposed by Barzel(1989) and show that the agents can actually raise their payoff by using a mechanism in which performs the function analogous to the real option.

Thesis (Ph.D.) - University of St Andrews, May 2007.

We take a critical view of the standard approach to finance and growth. The mapping between the theory and empirics is shown to be poorly understood, and this is traced to deficiencies in our understanding of the microeconomics at play. By looking at both primary and secondary historical evidence we argue that issues of aggregation are critical, and that spatial factors are also prevalent. Further, we suggest that these disaggregated elements can change over the course of an industrial revolution. A model in the spirit of standard finance and growth theories is extended to consider these further effects, and we calibrate the model to data on historical growth paths. In order to advance our understanding of the microeconomic factors that cause the observed phenomena in the finance-growth nexus, we develop a general equilibrium theory of financial intermediation in which exchange costs are endogenously determined by technologies, endowments and preferences. We suggest that incomplete contracts might be central to these phenomena. We link this framework to an understanding of power and political economy in a setting with heterogeneous agents. We develop these results numerically, showing a number of interesting interactions between markets, exchange costs and institutions in economies with different levels of wealth. The model of endogenous exchange costs can be thought of in terms of the findings coming out of our historical analysis. We outline in some detail the further steps that need to be taken before we can speak of the microfoundations of finance and growth with any confidence. First, a fully dynamic model of markets and coalitions must be embedded within a story of economic growth that can match the dynamic observations. Second, we must develop our conception of incomplete contracting and the link with institutions and political economy. The thesis thus opens a number of interesting avenues for future research.

O Acordo da Basiléia, originalmente criado em 1988 e posteriormente reformulado em 2004, estabelece critérios para a regulação do setor bancário com o intuito de garantir a estabilidade do sistema financeiro internacional. Para atingir estes objetivos, o seu principal instrumento é a requisição .de que os bancos internacionalmente ativos devem manter níveis mínimos de capital e relação aos seus ativos ajustados pelo risco. O objetivo do presente trabalho é analisar as motivações econômicas para esta requisição de capital do setor bancário, assim como analisar suas principais implicações. Iniciamos este trabalho com uma breve descrição histórica do Acordo da Basiléia e do papel da estrutura de capital do setor bancário neste Acordo. Em seguida, apresentamos uma descrição da teoria econômica dos contratos e as principais aplicações desta teoria para o estudo da estrutura de capital de uma firma em geral e do setor bancário em particular. Por fim, mostramos como os resultados obtidos pela teoria econômica justificam a estrutura geral do Acordo da Basiléia, e ressaltamos os principais desafios que serão enfrentados na pratica por seus formuladores. / The Basel Capital Accord, created in 1988 and reformulated in 2004, defines patterns for the banking sector with the aim of achieving the stability of the international financial system. It main instrument is theuse of minimum capital requirements. This work tries to understand the economic underpining of the Basel Capital Accord and its main inplications. We start with a description of the Accord and explain the role of the minimum capital requirements. We then introduce the main elements of the microeconic models of contract theory and use this models to explain the importance of the capital structure of a bank. Finally, we show how the main results of the models base don the insights of contract theory explain most of the features of the Basel Capital Accord and introduce its main limitations.

This paper addresses the tension between benefits of centralized data control against the benefits of decentralized control at the level of the business unit. Centralized data control provides the benefit of uniform standards whereas business unit data control grants flexibility to react to rapidly changing environments. Many data standardization efforts fail because they do not fully take into account the value of flexibility and ownership incentives. We use a real options based framework and the theory of incomplete contracts to derive propositions about the optimal level of data standardization across the enterprise. Applications of the propositions are illustrated with case vignettes. The paper makes two main contributions. First, the approach defines formally how incentive structures influence ownership of the option value or value of flexibility, which is an intangible information asset. Second the derived propositions would help senior management to more precisely consider aligning incentives in data standardization exercises.

O Acordo da Basiléia, originalmente criado em 1988 e posteriormente reformulado em 2004, estabelece critérios para a regulação do setor bancário com o intuito de garantir a estabilidade do sistema financeiro internacional. Para atingir estes objetivos, o seu principal instrumento é a requisição .de que os bancos internacionalmente ativos devem manter níveis mínimos de capital e relação aos seus ativos ajustados pelo risco. O objetivo do presente trabalho é analisar as motivações econômicas para esta requisição de capital do setor bancário, assim como analisar suas principais implicações. Iniciamos este trabalho com uma breve descrição histórica do Acordo da Basiléia e do papel da estrutura de capital do setor bancário neste Acordo. Em seguida, apresentamos uma descrição da teoria econômica dos contratos e as principais aplicações desta teoria para o estudo da estrutura de capital de uma firma em geral e do setor bancário em particular. Por fim, mostramos como os resultados obtidos pela teoria econômica justificam a estrutura geral do Acordo da Basiléia, e ressaltamos os principais desafios que serão enfrentados na pratica por seus formuladores. / The Basel Capital Accord, created in 1988 and reformulated in 2004, defines patterns for the banking sector with the aim of achieving the stability of the international financial system. It main instrument is theuse of minimum capital requirements. This work tries to understand the economic underpining of the Basel Capital Accord and its main inplications. We start with a description of the Accord and explain the role of the minimum capital requirements. We then introduce the main elements of the microeconic models of contract theory and use this models to explain the importance of the capital structure of a bank. Finally, we show how the main results of the models base don the insights of contract theory explain most of the features of the Basel Capital Accord and introduce its main limitations.

Recent corporate scandals and subsequent regulatory actions have heightened both the academic communities and the public's interest in corporate governance issues. Academics have long argued that voting rights constitute a critical component of a system of corporate governance. We provide evidence on the importance of one aspect of the firm's corporate governance system, namely shareholders' voting rights, by examining the determinants of the decision to grant equity-based compensation to the employees of the firm with or without shareholder approval. We find that poorly-performing firms and poorly-governed firms are more likely to adopt equity-based compensation plans without shareholder approval. Furthermore, when we examine financial performance subsequent to adoption of equity-based compensation plans, we find that poorly-governed firms that adopt equity-based compensation plans without consulting shareholder do not appear to gain any significant benefits associated with the incentives the plans are supposed to provide. In fact, in the year after an equity-based compensation plan is adopted, these firms perform worse than firms that have good systems of corporate governance or firms that place equity-based compensation plans to a shareholder vote. Overall, our results suggest that shareholder voting rights are an important tool of corporate governa

Submitted by Diego Guinancio (dguinancio@hotmail.com) on 2010-04-12T23:26:51Z No. of bitstreams: 1 AVALIAÇÃO DA ESTRUTURA DE PROPRIEDADE DE UNIDADES PRISIONAIS SOB A OTICA DE CONTRATOS INCOMPLETOS.pdf: 151442 bytes, checksum: 92ff024a2f42d9b41c47d688803507f6 (MD5) / Rejected by Gisele Gammaro(gisele.gammaro@fgv.br), reason: 1) Apagar o nome do orientado na primeira página 2) Traduzir a palavra-chave para key-works no abstract. on 2010-04-14T21:32:22Z (GMT) / Submitted by Diego Guinancio (dguinancio@hotmail.com) on 2010-05-03T21:43:04Z No. of bitstreams: 1 AVALIAÇÃO DA ESTRUTURA DE PROPRIEDADE DE UNIDADES PRISIONAIS SOB A OTICA DE CONTRATOS INCOMPLETOS.pdf: 151199 bytes, checksum: d9923da7e4d4e355dd9c614a23aee020 (MD5) / Approved for entry into archive by Vitor Souza(vitor.souza@fgv.br) on 2010-05-04T14:28:28Z (GMT) No. of bitstreams: 1 AVALIAÇÃO DA ESTRUTURA DE PROPRIEDADE DE UNIDADES PRISIONAIS SOB A OTICA DE CONTRATOS INCOMPLETOS.pdf: 151199 bytes, checksum: d9923da7e4d4e355dd9c614a23aee020 (MD5) / Made available in DSpace on 2010-05-04T20:45:26Z (GMT). No. of bitstreams: 1 AVALIAÇÃO DA ESTRUTURA DE PROPRIEDADE DE UNIDADES PRISIONAIS SOB A OTICA DE CONTRATOS INCOMPLETOS.pdf: 151199 bytes, checksum: d9923da7e4d4e355dd9c614a23aee020 (MD5) Previous issue date: 2009-11-27 / The motivation of this work is to answer the question: which is the best ownership structure, public or private, for the provision of prision administration service? To answer this question we will consider the impossibility of writing a complete contract for the service and the conflicting incentives of the agents. The development of this work will be realized by the construction of a functional model of the rotine of a prision which will consider the concepts of competition, information asymmetry, opportunistic behavior and electoral influence. / A motivação desta dissertação é responder a seguinte pergunta: qual a melhor estrutura de propriedade, pública ou privada, para a prestação do serviço de administração de unidades prisionais? Para responder a pergunta será considerada a impossibilidade de formular um Contrato Completo para a prestação do serviço e os incentivos conflitantes dos agentes envolvidos. O desenvolvimento do tema será realizado mediante a construção de um modelo funcional da rotina da unidade prisional que abordará os conceitos de competição, assimetria de informação, comportamento oportunista e influência eleitoral.