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Abstract:
A multi-divisional firm can engage in "winner-picking" to redistribute scarce funds efficiently across divisions. But there is a conflict between rewarding winners (investing) and producing resources with which to reward winners (incentives). Managers in winning divisions are tempted to free-ride on resources produced by managers in loosing divisions whose incentives to produce resources, anticipating their loss, are also weakened. Corporate headquarters' investment and incentive policies are therefore inextricably linked and have to be treated as jointly endogenous. The analysis links corporate strategy, compensation and the value of diversification to the characteristics of multi-divisional firms.

Abstract:
This paper examines the agency cost of winner-picking in multi-divisional firms and uses explicit incentive contracts to analyze the interaction between corporate headquarters' investment and incentive policies. Winner-picking, i.e. the efficient reallocation of scarce resources in an internal capital market, adds an extra layer of noise to the moral-hazard problem of incentivizing division managers to produce the resources that can then be redistributed. In particular, division managers with strong future investment opportunities anticipate that headquarters bails them out should they fail to produce enough resources themselves. This reduces incentives to create the resources in the first place with possible consequences for the optimal investment policy.

Internal Capital Markets, Conglomerate Discount, Transfers, Moral-hazard

Abstract:
This paper addresses the question of delegation in an organisation where there is an initial asymmetry of information between the principal and the agent. We assume that the principal cannot use revelation techniques a la Baron Myerson to elicit agent's superior information and in contrast, we posit that the decision and the state of the world parameter cannot be contracted for. With these simple contracts, we show that delegation is an alternative to contracting to elicit agent's information. We can show that delegated decisions completely reveal the state of the world to the principal. Therefore the principal can extract agent's information by giving up the control right over some decisions. As the organisation takes a sequence of decisions, the information learned by the principal can be used for the other decisions. So delegation is only partial: the principal delegates some decisions and keeps control over others.

Incomplete contracts, delegation, signalling game

Abstract:
In this paper, we raise the following two questions: (1) do Belgian holding companies operate an internal capital market to transfer financial resources in between their subsidiaries? And if yes, (2) is the internal capital market efficient? To answer the first question, we check if the group cash flow is a determinant of the investment's spending of group members. The answer is positive if the holding's subsidiary is affiliated to a coordinate center and negative otherwise. To answer the second question, we evaluate if internal transfers are driven by efficiency. From our estimations, we cannot conclude that Belgian Holding companies have an efficient internal capital market.

Investment, Holding, Internal capital market

Abstract:
A vertically integrated firm owns an essential input and operates on the downstream market. There is a potential entrant in the downstream market. Both firms use the same essential input. The regulator's objectives are (i) to ensure financing of the essential input; and (ii) to generate competition in the downstream market. The regulatory mechanism grants non-discriminatory access of the essential facility to the entrant provided it pays a two-part tariff to the incumbent. The optimal mechanism generates inefficient entry. The inefficient entry captures the trade-off between market efficiency and infrastructure financing resulting from incomplete information and non-discriminatory access.

Abstract:
In this paper we consider the problem of regulating an open access essential facility. A vertically integrated firm owns an essential input and operates on the downstream market under the roof of a regulatory mechanism. There is a potential entrant in the downstream market. Both competitors use the same essential input to provide the final services to the consumers. The regulator designs a mechanism that guarantees financing of the essential input and adequate competition in the downstream market. We consider a regulatory mechanism that grants non-discriminatory access of the essential facility to a competitor. We show that this mechanism is welfare improving but it generates inefficient entry. That is a more efficient competitor may stay out of the market or a less efficient competitor may enter the market.

regulation, railways, network, entry, competition, access charge, asymmetric information

Abstract:
This note points out the differences between conducting several projects within one big firm (common ownership)and conducting each project within an independent firm (separate ownership).

Conglomerate, Nature of the firm, Markets Vs. hierarchies

Abstract:
Postal markets have been open to competition for a long time. But, with a few exceptions, the competitors of the incumbent postal operator are active on the upstream segments of the market-preparation, collection, outward sorting and transport of mail products. With the further steps planned in the liberalization process, there are new opportunities to extend competition to the downstream segments of the market - the delivery of mails. In the future, two business models will be possible for the new postal operators: access: where the firm performs the upstream operations and uses the incumbent's delivery network and bypass where the competing firm controls the entire supply chain and delivers mails with its own delivery network. These two options have different impacts on welfare and the profit of the incumbent operator.

The choice between access and bypass depends on the entrant's delivery cost relative to the cost of buying access to the incumbent operator (the access price). In this paper, we derive optimal - welfare maximizing - stamp and access prices for the incumbent operator when these prices have an impact on the delivery method chosen by the entrant. We show how prices should be re-balanced when the entry method is considered as endogenous i.e. affected by the incumbent's prices.

access, bypass, postal sector

Abstract:
We analyse a (differentiated good) industry where an incumbent firm owns a network good (essential input) and faces potential competition in the (downstream) retail market. Unlike the traditional approach, we consider a scenario where the decision to compete or not in the downstream segment is endogenous, and this decision depends on the particular mechanism designed by the utilitarian regulator. We assume that the technology of the potential entrant is private information. We derive the efficient (Ramsey) prices and access charge taking the impact of a non-discriminatory mechanism on entry decision into account. We assert that the optimal pricing formula must include a Ramsey term that is inversely related to the "modified" superelasticty of the retail good under consideration. We further show, under unknown cost, that there might be "excess" or "too little" entry compared to the socially optimal level.

Non-discriminatory access, endogenous competition, modified superelasticity

Abstract:
This article studies a simple procurement problem (Laffont and Tirole, 1993) where the regulator faces a cash-in-advance constraint. The introduction of such a constraint not only reduces the amount of public good provided but also limits the instruments available to the regulator. The wealth constraint could change the optimal regulatory contract from a two-part tariff, where the quantities produced depend on the firm's cost, to a less efficient fixed fee where the firm produces the same quantity whatever its cost.

Abstract:
The budget of a university essentially depends on the number of students it enrols. In multi-department universities resources created in one department may be redistributed to other departments. This redistribution affects the way academics share their working time between research and teaching activities. Redistribution creates free-riding on teaching efforts. In this paper, we show that by designing internal financial rules which create yardstick competition for research funds, a multi-department university may induce better teaching quality and research, as compared to the performance of independent departments.

Multi-task, Incentive, University, Conglomerate

Abstract:
This paper compares two types of access pricing: a two-part tariff where the fixed part aims to cover (part of) the network's fixed cost and the variable part covers the network's usage costs and a single tariff where both the usage and (part of) the infrastructure costs are covered by a per-unit access charge. It compares how the regulator trades-off the degree of competition induced by the access charges and the network financing.

Access pricing, market structure, network financing