...resources is Pareto efficient when there is no alternative that keeps all individuals at least as well off, but makes at least one person better off. One reason that economists use this criterion for comparing economic systems is that it is relatively uncontroverisial. Stronger criteria are likely to be met with more disagreement. What is a property right? What role do property rights play in a market economy? A property right is a socially-enforced right to select the uses of an economic good. A property right is private when it is assigned to a specific person. Property rights are alienable when they can be transferred (sold or given) to other individuals. Since owners bear the wealth effects of their actions, there are strong incentives to rearrange property rights in market transactions to increase efficiency and value. Many economists favor free trade between nations. They argue that free trade will increase total world output and make people of trading nations better off. Discuss how this argument relates to concepts presented in this chapter. Free trade allows countries to concentrate on producing goods and services for which they have a comparative advantage. This specialization increases the total production of goods in the global economy. Thus, each nation can be better off with free trade than if they individually tried to be self sufficient. (Free trade increases the size of the total pie; thus allowing all countries to have a bigger piece.) What is...
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...PROC 5860 GOVERNMENT CONTRACTING MID-TERM EXAM Instructions: Please answer all questions in detail. One or two line responses are unacceptable. 1. What are acquisition plans designed to do: Acquisition planning is designed to efficiently and effectively use resources to design and develop, or produce quality systems. This includes ensuring accomplishment of mission requirements; promoting the use of commercial items; enhancing full and open competition; enhancing the use of performance-based acquisition; promoting strategic sourcing through consolidation of requirements; limiting the use of high-risk acquisition authorities; increasing support of small businesses; and facilitating effective allocation and use of resources. 2. Performance-based acquisition method is the preferred method of procuring service with the exception of procuring what kind of services? Performance-based acquisition is the preferred method for acquiring services, with the exception of the following services: architect-engineer services acquired in accordance with 40 U.S.C. 1101 et seq.; construction, utility services (see Part 41); or Services that are incidental to supply purchases, a firm-fixed price performance-based contract or task order, a performance-based contract or task order that is not firm-fixed price and a contract or task order that is not performance-based. 3. The federal acquisition and contracting source selection is the responsibility of whom? Who...
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...Chapter 10 - Incentive Conflicts And Contracts CHAPTER 10 INCENTIVE CONFLICTS AND CONTRACTS CHAPTER SUMMARY This chapter provides an overview of incentive conflicts and contracting within firms. It begins by defining the firm as a focal point for a set of contracts. It then discusses the many incentive conflicts that exist between the parties that make up the firm. The role of contracts in reducing these conflicts is examined. The importance of asymmetric information in limiting the ability to solve these problems in a costless manner is stressed. Both postcontractual and precontractual information problems are examined. The role of implicit contracts and reputational concerns in reducing incentive conflicts is discussed. CHAPTER OUTLINE FIRMS Managerial Application—Enforceability of Implicit contracts INCENTIVE CONFLICTS IN FIRMS Owner-Manager Conflicts Choice of effort Perquisite taking Differential risk exposure Managerial Application—The Spectrum of Organizations Differential horizons Overinvestment Other Conflicts Managerial Application—Buyer-Supplier Conflicts Managerial Application—Experimental Evidence on Free-Rider Problems Managerial Application—Incentive Conflicts throughout the World CONTROLLING INCENTIVE PROBLEMS THROUGH CONTRACTS Costless Contracting Managerial Application—Jack Welch’s Perquisites Costly Contracting and Asymmetric Information Managerial Application—Agency Problems with Owner-Managers Postcontractual Information Problems Agency Problems...
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...Professor Ross L Watts wrote two papers on the conservatism in financial accounting. Paper I sought to examine alternative explanations for conservatism in accounting and their implications for accounting regulators while Paper II is aimed at looking at the empirical evidence on conservatism, its consistency with alternative explanations and opportunities for future research. The paper under review is Paper I and the objectives of this paper are to discuss the explanations for conservatism and draw implications for regulation and standard setting. In this paper, it can be seen that Watts tries to develop a general contracting explanation for conservatism that holds with the existing debt contract dividend constraint explanation (Watts 1993), predicts that other contracts employed within the firm will also generate conservatism and argues that even without contracting considerations, an information perspective produces conservatism...
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...Introduction Accounting conservatism is traditionally defined by the adage “anticipate no profit, but anticipate all losses” (e.g., Bliss, 1924). Anticipating profits means recognizing profits before there is a verifiable legal claim to the revenues generating those profits. Conservatism does not imply that all revenue cash flows should be received before profits are recognized. Thus the issue is one of verifiability. In the empirical literature the adage is interpreted as representing “the accountant’s tendency to require a higher degree of verification to recognize good news as gains than to recognize bad news as losses” (Basu, 1997, p. 7). Conservatism is the asymmetry in the verification requirements for gains and losses. This interpretation allows for degrees of conservatism: the greater the difference in degree of verification required for gains versus losses, the greater the conservatism. It is this interpretation of conservatism that is adopted in this paper. An important consequence of conservatism’s asymmetric treatment of gains and losses is the persistent understatement of net asset values. Capital market regulators, standard-setters and academics criticize conservatism because this understatement in the current period can lead to overstatement of earnings in future periods by causing an understatement of future expenses. For example, Accounting Research Bulletin 2 (AICPA, 1939) states: “conservatism in the balance sheet is of dubious value if attained...
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...contract incentive called Award Term and are considering this as an option. There has been much discussion on what type of contract we will use for the re-compete for the follow on contact. In this paper I will cover the background of the award term incentive acquisition, compare different types of contracts, discuss the pros and cons of the award term method, and whether it meets the Competition in Contracting Act (CICA) requirements. If you search the Federal Acquisition Regulation (FAR) for award term incentive, you won’t find it there. It was designed by Mr. Thomas Jordan in 1997 at Kelly Air Force Base. He used it on a task order contract for the Air Force’s Aeronautical Systems Centers award to McDonnell Douglas Corporation for services on the F-15C aircraft. The contract had a seven year base period, which the contractor could extend to 15 years by rendering excellent service. This type of incentive was not in the Federal Acquisition Regulation (FAR), but was comparable to the award-fee incentive-type contract found in the FAR Part 16.405-2 [1]. Acquisitions that have included award term incentives have been conducted by the Air Force, but the National Aeronautics and Space Administration (NASA), the Naval Facilities Engineering Command (NFEC), the Naval Sea Systems Command (NSSC), the Army’s Ft. Drum in New York, and the General Services Administration have all conducted or announced plans to conduct acquisitions that include award term incentives. Those acquisitions...
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...designed by the board and shareholders, contracts help alleviate agency problems between managers and shareholders (the “optimal contracting” approach). 2. That they are a part of the agency problem itself (the “managerial power” approach). While the traditional compensation literature takes the optimal contracting view, it is difficult to see, at least with hindsight, why a competing approach did not exist for some time. After all, no contracts are complete or without side effects. It is somewhat more confounding, when one is provided an overview of the limitations of the optimal contracting approach. Specifically, the authors provide the following challenges to the approach: A. Faulty logic: If managers need contracts to optimize their behavior as agents, why wouldn’t directors? The optimal contracting approach is based on the simplistic assumption that directors are implicitly good representatives of shareholders. B. Director incentives: Directors who wish to be elected or re-elected are not likely to be adequately confrontational with the CEO because the CEO ultimately has influence over the director selection process. The hope that directors’ share ownership would lead them to overcome this hurdle is not borne out by the data because directors own too little of the companies on whose boards they serve. C. Market forces: Under the optimal contracting approach market forces are assumed to keep the players honest and the contracts clean. However, there is substantial evidence...
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...State versus Private Ownership Andrei Shleifer Department of Economics Harvard University Cambridge, Massachusetts. Abstract Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong. In essence, this is the case for capitalism over socialism, explaining the "dynamic vitality" of free enterprise. The great economists of the 1930s and 1940s failed to see the dangers of socialism in part because they focused on the role of prices under socialism and capitalism, and ignored the enormous importance of ownership as the source of capitalist incentives to innovate. Moreover, many of the concerns that private firms fail to address “social goals” can be addressed through government contracting and regulation, without resort to government ownership. The case for private provision only becomes stronger when competition between suppliers, reputational mechanisms, the possibility of provision by private not-for-profit firms, as well as political patronage and corruption, are brought into play. 1 What kinds of goods and services should be provided by government employees as opposed to private firms? Should government workers make steel and cars in government-owned factories? Should teachers and doctors be publicly employed or should they work for private schools and practices? Should garbage be picked up by civil servants or employees of private garbage haulers? Should the whole economy be "socialized"? Although...
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...[pic] Student Guide for Performance Based Service Acquisition And The Seven Step Process (ACQ 265) Nov 2009 Table of Contents UNIT 1 Introduction UNIT 2 Form the Team, Review Current Strategy, Market Research Step 1: Form the Team Step 2: Review the Current Strategy Step 3: Market Research UNIT 3 An Industry Perspective: Approaching an Acquisition UNIT 4 Requirements Definition Step 4: Requirements Definition UNIT 5 Develop your Sourcing Strategy Step 5: Sourcing Strategy UNIT 6 Execute the Strategy Step 6: Execute the Strategy UNIT 7 Performance Management Step 7: Manage Performance Appendices I Acronym List II Glossary | | | |Course Title |Performance Based Service Acquisition (ACQ 265) | | | | | | | |Lesson Title | Course Introduction | | ...
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...Journal of Economic Perspectives—Volume 17, Number 3—Summer 2003—Pages 71–92 Executive Compensation as an Agency Problem Lucian Arye Bebchuk and Jesse M. Fried E xecutive compensation has long attracted a great deal of attention from financial economists. Indeed, the increase in academic papers on the subject of CEO compensation during the 1990s seems to have outpaced even the remarkable increase in CEO pay itself during this period (Murphy, 1999). Much research has focused on how executive compensation schemes can help alleviate the agency problem in publicly traded companies. To understand adequately the landscape of executive compensation, however, one must recognize that the design of compensation arrangements is also partly a product of this same agency problem. Alternative Approaches to Executive Compensation Our focus in this paper is on publicly traded companies without a controlling shareholder. When ownership and management are separated in this way, managers might have substantial power. This recognition goes back, of course, to Berle and Means (1932, p. 139) who observed that top corporate executives, “while in office, have almost complete discretion in management.” Since Jensen and Meckling (1976), the problem of managerial power and discretion has been analyzed in modern finance as an “agency problem.” Managers may use their discretion to benefit themselves personally in a variety y Lucian Arye Bebchuk is the William J. Friedman Professor...
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...Competition in Contracting Act (CICA). Give an example of each. a. Full and open competition; Full and open competition means that all responsible sources are permitted to submit sealed bids or competitive proposals on the procurement. It is the preferred form of contracting and includes contracting by sealed bids, negotiation, and other procedures. Example: b. Full and open competition after exclusion of sources Full and open competition after exclusion of one or more sources is used when the U.S. Government excludes certain potential sources from consideration for a contract in order to establish or maintain alternative sources c. Other than full and open competition Under this method, a bid or proposal is solicited from one, or very few, sources. Detailed justification and approvals are required to document the choice of other than full and open competition as a means of acquisition. Example: The Department of Homeland Security, Office of Procurement Operations, proposes to enter into a contract on a basis other than full and open competition. DHS has a requirement on a sole source basis to upgrade and maintain proprietary software at an estimated cost of $7,550,000. List the name and address of the proposed contractor(s). 2. What is meant by the term “ratification” of a contract action? Who has the authority to ratify and give an example where ratification might be appropriate? Ratification means the execution by an authorized Contracting Officer, of...
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...Then Succeeding in the Mobile MarketBharti’s Core Competence • Market is highly competitive • Increasingly, IT expertise is needed for management of services • Network management cannot be the sole differentiator • Look at building expertise in value-added services, data, 3G Succeeding in the Mobile Market • Telecom industry in India is highly competitive with players- competition largely based on price which results in lower margins • Bharti must now look at providing value above basic telephony services and provide value added services which will allow it to charge a premium • Contracts must be drawn to outsource activities that can be done better by market firms to free up resources for other activities; avoid contracting and tendering repeatedly to reduce transaction costs associated with going for a new contract every few months Decision to outsource • Bharti Airtel should enter the outsourcing agreements and hand over the responsibility of buildup, maintenance and servicing of telecom network to equipment vendors like Ericsson, Nokia and Siemens and core IT infrastructure to IBM. Pay per usage approach – sharing market risks with the vendor Customer base growing at 100% per year and it was a challenge to keep pace with network expansion Budgeting and tendering process for network expansion taking tremendous amount of management time and bandwidth – used for sales and marketing Delay in adding additional capacity - Planning, tendering...
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...nation where anybody who’s got a good idea and a willingness to work hard can succeed. That’s the central promise of America.” “Small businesses are leaders in innovation and drivers of the economy. Small businesses hold more patents than all of the nation’s universities and largest corporations combined, and create two thirds of all private sector jobs, employing half of all working Americans. The Federal government is the largest buyer in the world, spending over $500 billion each year. For the Federal government contracting with small businesses is common sense. Small businesses get the revenue they need to create jobs and drive the economy forward, and federal agencies get the creativity, innovation, and technical expertise of small businesses to help accomplish their mission. When small businesses are excluded from federal contracts, the Federal government, American taxpayers, and the nation’s economy lose out.” Interagency Task Force on Federal Contracting Opportunities for Small Business Objectives • Identify the elements of the Department of Defense (DoD) Small Business Program for defense acquisitions to include the overall policy and regulations, small business goals, small business size standards, non-manufacturer rule, and North American Industrial Classification System (NAICS) codes. • Identify the role of the contract specialist and small business specialist in the acquisition team and the benefits of early involvement by the small business specialist in acquisition...
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...Running Head: FINANCIAL MANAGEMENT Financial Management MGMT 312 Financial Management Businesses must have a plan to succeed; if the original plan is not a success, there must be a few alternative plans available. First, the roles of a financial manager will be discussed. Second, a scenario was given to find a future value during a five year time frame and the results will be discussed. Finally, risk contracting will be evaluated including the various financial incentive structures and how they could be used to improve the efficiency of care in risk contracts. First, the roles of a financial manager will be discussed. As a manger, one is required for “effective risk management” (Farley, 2000). “More desirable options include growth, structuring incentives to reduce or eliminate unnecessary variation in resource use, and capturing information about why variations in resource use occur,” (Farley, 2000). Farley explains that larger organizations have more options than smaller businesses because it allows more room for risks (2000). A financial manager should be capable of strategic planning. Benoff mentions in 2000 that the strategic planning should consider, “a variety of market approaches before settling on a specific future market strategy.” Benoff (2000) strongly believes, “to account for the needs and perspectives of all stakeholders, therefore the strategic –planning...
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...Institutional Framework of Federal Acquisitions By Russell E. Hall Legal 440 Professor Hutter Strayer University July 16, 2012 The biggest customer in the world: The U.S. Government. The federal government spends more than $400 billion on supplies and services each year. It actually spends $465,000 on average, every 20 seconds of every business day, for a contract (Stanberry, 2009, preface). In order for a business to become part of selling to that enormous market it must first understand the laws, rules, and regulations that govern acquisitions and procurement for the federal government. Discuss the importance of fixed price contract in creating effective, efficient, and accountable acquisition planning: Under a Fixed price Contract. FAR 16.201, the government agrees to pay a specific price (which includes the contractor’s profit) for completed work and delivered products. The fixed price contract is used for the procurement of commercial items as well as services when: * There is adequate price competition; * There is reasonable price comparisons with past purchases of the same or similar products or services made on a competitive basis are available; * Available cost or pricing information permits realistic estimates of the probable performance cost * Performance uncertainties can be identified, and reasonable estimates of their cost impact can be made. The government prefers a fixed price contract because the liability...
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