Moral Hazard, Incentive Contracts and Risk: Evidence from Procurement

Deadlines and penalties are widely used to incentivize effort. We model how these incentive contracts affect the work rate and time taken in a procurement setting, characterizing the efficient contract design. Using new micro-level data on Minnesota highway construction contracts that includes day-by-day information on work plans, hours actually worked and delays, we find evidence of moral hazard. As an application, we build an econometric model that endogenizes the work rate, and simulate how different incentive structures affect outcomes and the variance of contractor payments. Accounting for the traffic delays caused by construction, switching to a more efficient design would substantially increase welfare without substantially increasing the risk borne by contractors.

Procurement Contracting with Time Incentives: Theory and Evidence

In public sector procurement, social welfare often depends on the time taken to complete the contract. A leading example is highway construction, where slow completion times inflict a negative externality on commuters. Recently, highway departments have introduced innovative contracting methods based on scoring auctions that give contractors explicit time incentives. We characterize equilibrium bidding and efficient design of these contracts. We then gather an extensive data set of highway repair projects awarded by the California Department of Transportation between 2003 and 2008 that includes both innovative and standard contracts. Comparing similar con- tracts in which the innovative design was and was not used, we show that the welfare gains to commuters from quicker completion substantially exceeded the increase in the winning bid. Having argued that the current policy is effective, we then develop a structural econometric model that endogenizes participation and bidding to examine counterfactual policies. Our estimates suggest that while the current policy raised com- muter surplus relative to the contractor's costs by $359M (6.8$1.52B (29%).

Molecular clouds and the large-scale structure of the galaxy

The application of molecular radio astronomy to the study of the large-scale structure of the Galaxy is reviewed and the distribution and characteristic properties of the Galactic population of Giant Molecular Clouds (GMCs), derived primarily from analysis of the Columbia CO survey, and their relation to tracers of Population 1 and major spiral features are described. The properties of the local molecular interstellar gas are summarized. The CO observing programs currently underway with the Center for Astrophysics 1.2 m radio telescope are described, with an emphasis on projects relevant to future comparison with high-energy gamma-ray observations. Several areas are discussed in which high-energy gamma-ray observations by the EGRET (Energetic Gamma-Ray Experiment Telescope) experiment aboard the Gamma Ray Observatory will directly complement radio studies of the Milky Way, with the prospect of significant progress on fundamental issues related to the structure and content of the Galaxy

Incorporating the Dual Customer Roles in e-Service Design

E-service involves the delivery of useful services through information technology based service delivery channels such as the Internet. A distinguishing feature of e-service is the active and significant participation of customers in the service co-production process. With increasing customer participation in the e-service co-production process, it is important to incorporate customers’ needs both as a co-producer and as a patron into the design of e-service systems. However, these dual customer roles create a complex decision problem during e-service design. In the current paper we present a customer orientation strategy for e-service design, and propose a corresponding two-stage decision model based upon the customer orientation strategy to evaluate the efficiency and effectiveness of e-service design when the focus of the design is to meet customers’ needs as both co-producers and patrons. The decision model is then applied in an empirical study of the design of e-services of Internet food retailers. Key Words: Service Operations, E-Service, Co-production, Efficiency Analysis, Data Envelopment Analysis