IT governance in SMEs: trust or control?

It is believed by many scholars that a small and medium-sized enterprise (SME) cannot be seen through the lens of a large firm. Theories which explain IT governance in large organizations and methodologies used by practitioners can therefore not be extrapolated to SMEs, which have a completely different economic, cultural and managerial environment. SMEs suffer from resource poverty, have less IS experience and need more external support. SMEs largely contribute to the failure of many IS projects. We define an out-sourced information system failure (OISF) as a failure of IT governance in an SME environment and propose a structure for stating propositions derived from both agency theory and theory of trust. The theoretical question addressed in this paper is: how and why do OISFs occur in SMEs? We have chosen a qualitative and positivistic IS case study research strategy based on multiple cases. Eight cases of IS projects were selected. We found that trust is more important than control issues like output-based contracts and structured controls for eliminating opportunistic behaviour in SMEs. We conclude that the world of SMEs is significantly different from that of large companies. This necessitates extra care to be taken on the part of researchers and practitioners when designing artefacts for SMEs

A menu of options : a Richmond Fed economist says that giving financial institutions limited choice about how they are regulated may produce a more stable and efficient banking system

Bank loans ; Banks and banking ; Contracts

Delegation and incentives

This paper analyses the relation between authority and incentives. It extends the standard principal / agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority. The agent's subsequent choice of e ort depends both on monetary incentives and the selected project. We nd that the consideration of e ort incentives makes the principal less likely to delegate the authority over projects to the agent. In fact, if the agent is protected by limited liability, delegation is never optimal. --Authority,delegation,incentives,moral hazard,principal / agent problem,limited liability

Mechanism design with private communication

We investigate the consequences of assuming "private" communication between the principal and each of his agents in an otherwise standard mechanism design setting.Doing so simplifies significantly optimal mechanisms and institutions. Moreover, it restores continuity of the principal's payoff and of the optimal mechanism with respect to the information structure while still maintaining the useful role of correlation to better extract the agents' information rent. We first prove a "Revelation Principle with private communication" that characterizes the set of allocations implementable under private communication by means of simple "non-manipulability constraints". We also demonstrate a "Taxation Principle" which helps drawing some links between private communication and limited commitment on the principal's side. Equipped with those tools, we derive optimal non-manipulable mechanisms in various environments (unrelated projects, auctions, team production).MECHANISM DESIGN;PRIVATE COMMUNICATION

Foundational Economic Theories for Political-Scientific Inter-Branch Studies

Economic theories are increasingly popular in political science, and in particular in research on the relations between the legislative, the executive, and the judicial branches of government. Among these theories, principal-agent (´PA´) and transaction cost economics (´TCE´) feature particularly high in our research agenda. Yet, pushed by the view that "the content of ´science´ is primarily the methods and rules" (King et al. 1994: 9), and working with limited resources, political scientists have tended to neglect careful theorizing. PA and TCE are taken off-the-shelf without much prior scrutiny, and past conceptual mistakes are perpetuated. This paper aims at introducing and explaining the real PA, positive agency, TCE, and incomplete contracts theories for the purposes of political analysis. In a companion paper, I show the serious mistakes perpetuated by political scientists, and I argue that, faced with a choice between those four economic theories, we should place our bets on a revised version of TCE.Theory of delegation, political science, principal-agent models, transaction costs economics

The simple micro-economics of public-private partnerships

We build a unified theoretical framework to analyze the main incentive issues in Public Private Partnerships (PPPs) and the shape of optimal contracts in those contexts. We present a basic model of procurement in a multitask environment in which a risk-averse agent chooses unobservable efforts in cost reduction and quality improvement. We begin by studying the effect on incentives and risk transfer of bundling building and operation into a single contract, allowing for different assumptions on the contractual framework and the quality of the information held by the government. We then extend the basic model in several directions. We consider the factors that affect the optimal allocation of demand risk and their implications for the use of user charges and the choice of contract length. We study the relationship between the operator and its financiers and the impact of private finance. We discuss the trade-off between incentive and flexibility in long-term PPP agreements and the dynamics of PPP contracts, including cost overruns. We also consider how the institutional environment, and specifically the risk of regulatory opportunism, affects contract design and incentives. We conclude with some policy implications on the desirability of PPPs

Futures Market: Contractual Arrangement to Restrain Moral Hazard in Teams

Holmstrom (1982) argues that a principal is required to restrain moral hazard in a team: wasting output in a certain state is required to enforce efficient effort, and the principal is a commitment device for such enforcement. Under competition in commodity and team-formation markets, I extend his model a la Prescott and Townsend (1984) to show that competitive contracts can exploit the futures market to transfer output across states instead of wasting it. Thus, the futures market replaces the role of principals. An important feature of such contracts is exclusiveness: private access to the the futures market by team members is not allowed. The duality of linear programming is exploited to characterize a market environment and the contractual agreements for efficiency.