Embedded Options and the Case Against Compensation in Contract Law

Despite the fact that compensation is the governing principle in contract law remedies, it has tenuous historical, economic and empirical support. A promisor's right to breach and pay damages (which is subject to the compensation principle) is only a subset of a larger family of termination rights that do not purport to compensate the promisee for losses suffered when the promisor walks away from the contemplated exchange. These termination rights can be characterized as embedded options that serve important risk management functions. We show that sellers often sell insurance to their buyers in the form of these embedded options. We explain why compensation is of little relevance to the option price agreed to by the parties, which is a function of the value of the option to the buyer, its cost to the seller and the market in which they transact. We thus propose a novel justification for why penalty liquidated damages may be higher than seller's costs: they are option prices that reflect the value of the options to the buyer. The regulation of liquidated damages is thus tantamount to price regulation, which is outside the realm of contract law. Moreover, in light of the heterogeneity among optimal option prices, we also make the case against having an expectation damages default rule to begin with. In thick markets, we argue for enforcing the parties ex ante risk allocation with market damages. In thin markets, we propose that parties be induced to agree explicitly with respect to all termination rights, including breach damages, by the threat of specific performance of their contemplated exchange or, in the case of consumers, by a default rule that provides them a termination option at no cost.

Modelling Dynamically Re-sizeable Electrodes (DRE) for Targeted Transcutaneous Measurements in Impedance Plethysmography

Impedance plethysmography of extremities typically uses band electrodes around limbs to monitor changes in blood volume. This often causes monitored blood variations to only generate minuscule impedance values relative to the measured baseline, attributed to the tissue surrounding the artery or vein of interest. Smaller, ECG type electrodes can provide a larger signal, however their output is very easily affected by the placement of the electrodes relative to the targeted vasculature. This paper presents a novel method to adjust the active surface of electrodes, introducing Dynamically Re-sizeable Electrodes (DRE), to only target the exact area of interest, forming localised electrodes, without having to manually re-position them. Elongated rectangular electrodes were partitioned into smaller electrode segments, interconnected through custom circuitry. For the development and assessment of the DRE system, work was carried out both experimentally in-vitro on gelatine phantoms using custom switching circuits and through finite element modelling (FEM) simulations in COMSOL. A scanning sequence made use of DRE in single segment variable tetra-pole (SSVT) mode proved capable to identify the transcutaneous location of the blood vessel of interest and the specific electrode segments located in its vicinity. Impedance measurements were then taken using these segments connected to form localised electrodes only placed over the targeted vessel. The resulting localised electrodes exhibited up to 28% increased sensitivity to blood variations relative to larger electrodes

Non-destructive evaluation of cement-based materials from pressure-stimulated electrical emission - Preliminary results

This is the post-print version of the final paper published in Construction and Building Materials. The published article is available from the link below. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. Copyright @ 2010 Elsevier B.V.This paper introduces the possibility of in situ assessment of loading and remaining strength in concrete structures by means of measuring discharge of electric current from loaded specimens. The paper demonstrates that the techniques have been applied to other rock-like materials, but that for the first time they are applied to cement-based materials and a theoretical model is proposed in relation to the appearance of electrical signals during sample loading and up to fracture. A series of laboratory experiments on cement mortar specimens in simple uniaxial compression, and subsequently in bending – hence displaying both tension and compression – are described and show clear correlations between resulting strains and currents measured. Under uniaxial loading there is a well-defined relationship between the pressure-stimulated current (PSC) as a result of a monotonic mechanical loading regime. Similar results are observed in the three-point bending tests where a range of loading regimes is studied, including stepped changes in loading. While currents can be measured at low strains, best results seem to be obtained when strains approach and exceed yield stress values. This technique clearly has immense potential for structural health monitoring of cement-based structures. Both intermittent and continuous monitoring becomes possible, and given an ongoing campaign of monitoring, remaining strength can be estimated

Conversion Rights and the Design of Financial Contracts

Part II of this Article discusses the gains yielded by convertible debt financing. Convertible debt can act as a signal of favorable private information and can mitigate the incentives of shareholders to promote excessive risk taking by the firm. Part III describes puttable stock and the legal regulation that bears on it. The regulation of puttable stock ranges from prohibition to the requirement that the firm be solvent after the exercise of the put. Part IV compares convertible debt and puttable stock. Part V discusses the effect of the mildest form of legal restrictions on puttable stock, the solvency requirement, on these potential gains

Comparing Firm Performance Using Transitive Productivity Index Numbers in a Meta-frontier Framework

The meta-frontier framework has been used extensively for evaluating the technical efficiency of heterogeneous production units that can be classified into different groups. This paper shows how the framework can also be used to make total factor productivity (TFP) comparisons within and across groups. The paper develops a new measure of the distance between a group frontier and the meta-frontier (the so-called ‘technology gap’). It then shows how a spatially- and temporally-transitive TFP index can be decomposed into measures of global technical change (measuring movements in the metafrontier), local technical change (measuring movements in the group frontiers) and efficiency change (measuring movements towards or around the group frontiers). To illustrate the methodology, the paper examines the productive performance of road authorities responsible for maintaining interstate highways in the US state of Virginia.

Spiking Chemical Sensor (SCS): A new platform for neuro-chemical sensing

Published versio

Debt Financing and Motivation

An individual\u27s performance in a given activity is a function of her effort and her competence, as well as her surrounding conditions. Effort, in turn, can be divided into three characteristics: direction, intensity and duration. Intensity and duration of effort reflect the individual\u27s motivation with respect to the given activity. Motivation is the product of a cognitive process that anticipates the outcomes of effort and, particularly, the degree to which the individual will be satisfied or dissatisfied with her performance. While individuals might define satisfaction in terms of input (i.e., the amount of effort applied to the task), they more typically set standards for output (i.e., performance) that are derived from internal and external sources. Performance is commonly judged by a dichotomous success-failure standard as opposed to a graduated metric standard. This standard has both a prospective and retrospective impact on motivation. For example, an individual is motivated to raise her effort to avoid failure, and, if failure occurs, she may be motivated to redirect, intensify or prolong future effort to avoid the recurrence of failure