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Research Seminars

Contracting in the Shadow of the Future

Professor Ranjani Krishnan
Michigan State University
Tuesday, Sep 23, 2014 at 9:40AM | Room TBA


Contracting in the Shadow of the Future





design involves control mechanisms that trade off the provision of ex
 incentives to reduce losses from moral hazard, while avoiding
costs of ex post adaptations. We examine how this tradeoff
influences the form of the contract, namely cost-plus and fixed-price. We
investigate whether two control mechanisms, i.e., the possibility of a future
horizon, and bilateral reputation capital can mitigate the risk of
cost-inefficiency in cost-plus contracts and adaptation costs in fixed-price
contracts. We analytically show that the attractiveness of a cost-plus
(fixed-price) contract is increasing in (a) task complexity, (b) vendor rent
seeking potential, (c) contracting parties' potential for future business, and
(d) vendor reputation for cost containment (fair bargaining). We test the
model's predictions using contract data collected from the SEC material
contracts database, supplemented with hand-collected data from trade and
industry publications. Results using recursive, simultaneous, bivariate probit
estimations with endogeneity corrections support our predictions.


Keywords: Fixed price
contract, cost plus contract, incentives, hold up, relational contract.


JEL Classifications:
D23, D86, L14, M41


Pacing work in knowledge intensive services in a non-stationary environment: Goal-gradient, Deadline and Fatigue

Sarang Deo
Indian School of Business
Tuesday, Oct 14, 2014 at 11:20AM | Room 204

There is a growing interest in understanding how work pace in service systems is regulated by workload. The main effect, found in lab experiments as well as field studies is that workers speed up in response to high amount of unfinished workload. We contribute to this literature by specifically investigating the role of fixed deadlines and goals associated with the overall workload in regulating work pace. We base our empirical study on a large operational and clinical dataset on patient appointments and visits in the outpatient department of a tertiary eye care hospital. While analyzing the performance across days, we do not find any evidence of speed up or slowdown in response to the goal (anticipated patient load). However, when investigating the performance within a day, we find that work pace increases as the distance to the goal reduces (goal-gradient effect) and as one approaches the end of the day (deadline effect). Further, we find that the goal-gradient effect is stronger closer to the deadline compared to farther from the deadline. In addition, we also uncover a fatigue effect - work pace reduces as the cumulative output increases - attributable to the knowledge intensity of the tasks. These results have implications for designing critical elements of service systems such as the length of the work shift and setting of intermediate goals during the course of a shift.

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