Trust and Trustworthiness in Procurement Contracts with Retainage

When product quality is unverifiable by third parties, enforceable contracts that condition price upon quality are not feasible. If higher quality is also costly to deliver, moral hazard by sellers flourishes, particularly when procurement is via a competitive auction process. Retainage is a contractual mechanism that presents a solution to the third-party unverifiability problem, by setting aside a portion of the purchase price. After delivery, the buyer has sole discretion over the amount of retainage money that is released to the seller. While generally a feasible contract form to implement, retainage introduces a moral hazard for the buyer. We use laboratory experiments to investigate how and when retainage might be successfully used to facilitate trust and trustworthiness in procurement contracts. We observe that retainage induces a significant improvement in product quality when there are some trustworthy buyers in the population, consistent with a model of fair payment norms that we develop. This improvement is realized at the cost of increased buyer-seller profit inequalities. We also observe that at high levels of retainage, there is a welfare-decreasing market unraveling in which sellers do not bid on contracts. Our results imply that retainage incentives can mitigate the tension between competition and cooperation arising from reverse auctions, but only at appropriate levels of retainage

Order Stability in Supply Chains: Coordination Risk and the Role of Coordination Stock

The bullwhip effect describes the tendency for the variance of orders in supply chains to increase as one moves upstream from consumer demand. We report on a set of laboratory experiments with a serial supply chain that tests behavioral causes of this phenomenon, in particular the possible influence of coordination risk. Coordination risk exists when individuals' decisions contribute to a collective outcome and the decision rules followed by each individual are not known with certainty, for example, where managers cannot be sure how their supply chain partners will behave. We conjecture that the existence of coordination risk may contribute to bullwhip behavior. We test this conjecture by controlling for environmental factors that lead to coordination risk and find these controls lead to a significant reduction in order oscillations and amplification. Next, we investigate a managerial intervention to reduce the bullwhip effect, inspired by our conjecture that coordination risk contributes to bullwhip behavior. Although the intervention, holding additional on-hand inventory, does not change the existence of coordination risk, it reduces order oscillation and amplification by providing a buffer against the endogenous risk of coordination failure. We conclude that the magnitude of the bullwhip can be mitigated, but that its behavioral causes appear robust.National Science Foundation (U.S.) (Grant SES-0214337)Mary Jean and Frank P. Smeal College of Business Administration (Center for Supply Chain Research)Sloan School of Management (Project on Innovation in Markets and Organizations

Reproducibility in Management Science

With the help of more than 700 reviewers we assess the reproducibility of nearly 500 articles published in the journal Management Science before and after the introduction of a new Data and Code Disclosure policy in 2019. When considering only articles for which data accessibility and hard- and software requirements were not an obstacle for reviewers, the results of more than 95% of articles under the new disclosure policy could be fully or largely computationally reproduced. However, for 29% of articles at least part of the dataset was not accessible to the reviewer. Considering all articles in our sample reduces the share of reproduced articles to 68%. These figures represent a significant increase compared to the period before the introduction of the disclosure policy, where only 12% of articles voluntarily provided replication materials, out of which 55% could be (largely) reproduced. Substantial heterogeneity in reproducibility rates across different fields is mainly driven by differences in dataset accessibility. Other reasons for unsuccessful reproduction attempts include missing code, unresolvable code errors, weak or missing documentation, but also soft- and hardware requirements and code complexity. Our findings highlight the importance of journal code and data disclosure policies, and suggest potential avenues for enhancing their effectiveness

Reproducibility in Management Science

With the help of more than 700 reviewers, we assess the reproducibility of nearly 500 articles published in the journal Management Science before and after the introduction of a new Data and Code Disclosure policy in 2019. When considering only articles for which data accessibility and hardware and software requirements were not an obstacle for reviewers, the results of more than 95% of articles under the new disclosure policy could be fully or largely computationally reproduced. However, for 29% of articles, at least part of the data set was not accessible to the reviewer. Considering all articles in our sample reduces the share of reproduced articles to 68%. These figures represent a significant increase compared with the period before the introduction of the disclosure policy, where only 12% of articles voluntarily provided replication materials, of which 55% could be (largely) reproduced. Substantial heterogeneity in reproducibility rates across different fields is mainly driven by differences in data set accessibility. Other reasons for unsuccessful reproduction attempts include missing code, unresolvable code errors, weak or missing documentation, and software and hardware requirements and code complexity. Our findings highlight the importance of journal code and data disclosure policies and suggest potential avenues for enhancing their effectivenes

Why Genius Leads to Adversity: Experimental Evidence on the Reputational Effects of Task Difficulty Choices

W e use a behavioral laboratory experiment to study how agents with reputation concerns select the difficulty of their tasks. Drawing upon existing theory, we subjected participants in our study to a context in which they had to convince a principal of their capability to reap financial benefits. Our results show that participants tended to increase the difficulty of their task to enhance their reputation. In addition, we provide evidence that performance rewards reduce a less capable agent's tendency to choose a more difficult task, whereas a highly capable agent's pattern of choices is unaffected by performance rewards. Although the productivity of agents in our experiment therefore decreased if they had to convince a principal of their capability, we show that these detrimental performance implications can to some degree be overcome for less capable agents through performance rewards or by ensuring that the principal can interpret the agent's choice