Formal Contracts, Relational Contracts, and the Threat-Point Effect

Can formal contracts help resolving the holdup problem? We address this important question by studying the holdup problem in repeated transactions between a seller and a buyer in which the seller can make relation-specific investments in each period. In contrast to previous findings, we demonstrate that writing a simple fixed-price contract based on product delivery is of value even when relation-specific investment is purely cooperative. In particular, there is a range of parameter values in which a higher investment can be implemented only if a formal fixed-price contract is written and combined with an informal agreement on additional payments or termination of future trade, contingent upon investments. Furthermore, we show that under an additional natural assumption, focusing our attention on fixed-price contracts as a form of formal contracts is without loss of generality. The key driving force of our result is a possibility that the threat-point effect is negative, i.e., the relation-specific investment decreases the surplus under no trade. This possibility, although very plausible, has been largely ignored in previous theoretical/empirical analyses of the holdup problem.holdup problem, formal contract, relational contract, cooperative investment, fixed-price contract, relation-specific investment, repeated transactions, long-term relationships

Formal Contracts, Relational Contracts, and the Holdup Problem

We study the holdup problem in repeated transactions between a seller and a buyer such that the seller makes relation-specific investments in each period. We show that where, under spot transaction, formal contracts have no value because of the cooperative nature of investment, writing a simple fixed-price contract can be valuable under repeated transactions: There is a range of parameter values in which a higher investment can be implemented only if a formal price contract is written and combined with a relational contract. We also show that there are cases in which not writing a formal contract but entirely relying on a relational contract increases the total surplus of the buyer and the seller. The key condition is how the investment affects the renegotiation price in general, and the alternative-use value in particular.holdup problem, formal contract, relational contract, cooperative investment, fixed-price contract, relation-specific investment, renegotiation, repeated transactions, long-term relationships

The Pygmalion Effect: An Agency Model with Reference Dependent Preferences

We attempt to formulate and explain two types of self-fulfilling prophecy, called the Pygmalion effect (if a supervisor thinks her subordinates will succeed, they are more likely to succeed) and the Galatea effect (if a person thinks he will succeed, he is more likely to succeed). To this purpose, we extend a simple agency model with moral hazard and limited liability by introducing a model of reference dependent preferences (RDP) by Kõszegi and Rabin (2004). We show that the agent with high expectations about his performance can be induced to choose high effort with low-powered incentives. We then show that the principal’s expectation has an important role as an equilibrium selection device.self-fulfilling prophecy, Pygmalion effect, Galatea effect, reference dependent preferences, agency model, moral hazard

Doppler echocardiographic assessment of left ventricular diastolic function in chronic hypoxic rats

Little information is available on the mechanism of diastolic left ventricular (LV) dysfunction in patients with chronic respiratory disease complicated by hypoxia. The purpose of this study was to investigate how chronic hypoxia impairs LV diastolic function in an hypoxic animal model. Thirty-six male Wistar rats 8 weeks old were assigned to normoxia (N), chronic hypoxia (CH), and re-normoxia (RN) groups, 12 rats per group. The N group rats were kept in ambient air for 8 weeks, while the CH group was kept hypoxic for 8 weeks. After 8 weeks of hypoxia the RN group rats were kept for a further 8 weeks in ambient air. LV systolic and diastolic functions, as well as right ventricular (RV) function, were analyzed using Doppler echocardiography;we also measured the hematocrit, and weighed the LV and RV. Hematocrit, RV weight/body weight, and RV weight/LV weight were higher in the CH group than in the other 2 groups. However, most of these parameters returned to normoxia levels after re-normoxia. In the CH group, LV dimension and area were smaller than in the other 2 groups. LV systolic function was preserved in all groups;however, in the CH group, mitral flow showed a restrictive pattern, while pulmonary flow demonstrated a pulmonary hypertensive pattern with prolonged RV ejection time. In conclusion, chronic hypoxia induced pulmonary hypertension and RV hypertrophy. Although LV systolic function was preserved, diastolic function was impaired in hypoxia. Ventricular interaction may impair LV diastolic function.</p

Formal contracts, relational contracts, and the threat-point effect

Can formal contracts help resolving the holdup problem? We address this important question by studying the holdup problem in repeated transactions between a seller and a buyer in which the seller can make relation-specific investments in each period. In contrast to previous findings, we demonstrate that writing a simple fixed-price contract based on product delivery is of value even when relation-specific investment is purely cooperative. In particular, there is a range of parameter values in which a higher investment can be implemented only if a formal fixed-price contract is written and combined with an informal agreement on additional payments or termination of future trade, contingent upon investments. Furthermore, we show that under an additional natural assumption, focusing our attention on fixed-price contracts as a form of formal contracts is without loss of generality. The key driving force of our result is a possibility that the threat-point effect is negative, i.e., the relation-specific investment decreases the surplus under no trade. This possibility, although very plausible, has been largely ignored in previous theoretical/empirical analyses of the holdup problem

Formal contracts, relational contracts, and the holdup problem

We study the holdup problem in repeated transactions between a seller and a buyer such that the seller makes relation-specific investments in each period. We show that where, under spot transaction, formal contracts have no value because of the cooperative nature of investment, writing a simple fixed-price contract can be valuable under repeated transactions: There is a range of parameter values in which a higher investment can be implemented only if a formal price contract is written and combined with a relational contract. We also show that there are cases in which not writing a formal contract but entirely relying on a relational contract increases the total surplus of the buyer and the seller. The key condition is how the investment affects the renegotiation price in general, and the alternative-use value in particular

The Pygmalion effect : an agency model with reference dependent preferences

We attempt to formulate and explain two types of self-fulfilling prophecy, called the Pygmalion effect (if a supervisor thinks her subordinates will succeed, they are more likely to succeed) and the Galatea effect (if a person thinks he will succeed, he is more likely to succeed). To this purpose, we extend a simple agency model with moral hazard and limited liability by introducing a model of reference dependent preferences (RDP) by K'szegi and Rabin (2004). We show that the agent with high expectations about his performance can be induced to choose high effort with low-powered incentives. We then show that the principal's expectation has an important role as an equilibrium selection device

Extracorporeal membrane oxygenation following pediatric cardiac surgery: development and outcomes from a single-center experience

　Extracorporeal membrane oxygenation (ECMO) has emerged as an effective mechanical support following cardiac surgery with respiratory and cardiac failure. However, there are no clear indications for ECMO use after pediatric cardiac surgery. We retrospectively reviewed medical records of 76 pediatric patients [mean age, 10.8 months (0-86); mean weight, 5.16 kg (1.16-16.5)] with congenital heart disease who received ECMO following cardiac surgery between January 1997 and October 2010. Forty-five patients were treated with an aggressive ECMO approach (aggressive ECMO group, April 2005-October 2010) and 31 with a delayed ECMO approach (delayed ECMO group, January 1997-March 2005). Demographics, diagnosis, operative variables, ECMO indication, and duration of survivors and non-survivors were compared. Thirty-four patients (75.5%) were successfully weaned from ECMO in the aggressive ECMO group and 26 (57.7%) were discharged. Conversely, eight patients (25.8%) were successfully weaned from ECMO in the delayed ECMO group and two (6.5%) were discharged. Forty-five patients with shunted single ventricle physiology (aggressive: 29 patients, delayed: 16 patients) received ECMO, but only 15 (33.3%) survived and were discharged. The survival rate of the aggressive ECMO group was significantly better when compared with the delayed ECMO group (p<0.01). Also, ECMO duration was significantly shorter among the aggressive ECMO group survivors (96.5 ± 62.9 h, p<0.01). Thus, the aggressive ECMO approach is a superior strategy compared to the delayed ECMO approach in pediatric cardiac patients. The aggressive ECMO approach improved our outcomes of neonatal and pediatric ECMO

A prospective randomized trial comparing the clinical effectiveness and biocompatibility of heparin-coated circuits and PMEA-coated circuits in pediatric cardiopulmonary bypass

OBJECT:　 We compared the clinical effectiveness and biocompatibility of poly-2-methoxyethyl acrylate (PMEA)-coated and heparin-coated cardiopulmonary bypass (CPB) circuits in a prospective pediatric trial.　 METHODS:　 Infants randomly received heparin-coated (n=7) or PMEA-coated (n=7) circuits in elective pediatric cardiac surgery with CPB for ventricular septum defects. Clinical and hematologic variables, respiratory indices and hemodynamic changes were analyzed perioperatively.　 RESULTS:　 Demographic and clinical variables were similar in both groups. Leukocyte counts were significantly lower 5 minutes after CPB in the PMEA group than the heparin group. Hemodynamic data showed that PMEA caused hypotension within 5 minutes of CPB. The respiratory index was significantly higher immediately after CPB and 1 hour after transfer to the intensive care unit (ICU) in the PMEA group, as were levels of C-reactive protein 24 hours after transfer to the ICU.　 CONCLUSION:　 Our study shows that PMEA-coated circuits, unlike heparin-coated circuits, cause transient leukopenia during pediatric CPB and, perhaps, systemic inflammatory respiratory syndrome after pediatric CPB