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Abstract:
This paper studies the influence of a manager's pre-decision use of an information system on the central office's provision of such a system. At the outset, the manager is ignorant about the cost of an investment project. Higher effort of using the information system raises the probability that the manager is informed at the project proposal stage. The central office does not know whether it faces an informed or an ignorant manager.

We derive three new results. First, to limit managerial slack for potentially ignorant managers, the central office sharply cuts investment-budgets if the expected net present value of the project is high. Second, if the expected net present value is high (low), the manager's effort to use the information system is higher (lower) than in the First Best solution. Third, the central office strategically provides no information system if the expected net present value of the investment project exceeds some cutoff value.

capital budgeting, managerial slack, hold-up, use of an information system

Abstract:
We consider supplier-credit contracting between a manufacturer and a liquidity-constrained dealer. We show that the timeliness according to which the dealer receives demand information has a significant impact on the optimal contract. If the manufacturer cannot be sure that a dealer without liquidity has demand information when the contract is written, the optimal contract pools an ignorant dealer with a dealer who knows that there are unfavorable demand conditions whereas dealers with favorable demand information are screened. If the dealer's liquidity rises, the manufacturer proposes a contract that resembles the solution of a classic adverse selection model in the spirit of Harris, Kriebel, and Raviv (1982). For high liquidity, the optimal supplier-credit contract pools an ignorant dealer with dealers who have favorable demand information whereas dealers with unfavorable demand information are screened.

Supplier credit, supply chain contract, limited liquidity, ignorance

Abstract:
We investigate cost-based access pricing in regulated network industries. Building on recent progress in the accounting literature, we show that a regulator must choose a particular depreciation schedule, namely, relative replacement cost depreciation in order to prevent the network provider from playing manipulative games with the cost-based access price. We then show that the network provider is put at a strategic disadvantage if the regulator sets the access price equal to long-run incremental costs and the downstream market is symmetric. This result may be understood by looking at strategic interaction in the downstream market where both firms are better off if they behave “softly”. If the regulator sets a low access price, he commits the downstream competitor to price aggressively. Then, the entire burden of softening competition must be borne by the network provider. Finally, since consumer prices are decreasing in the access price, we conclude that the regulator faces a tradeoff between low consumer prices and a level playing field on the downstream market.

access pricing, depreciation

Abstract:
This paper considers optimal contracts in supply chains that consist of firms and face a potential investment hold-up problem. We show that option contracts may solve the incentive problems. First, we provide case-study evidence for the use of option contracts in the semiconductor industry. As our second contribution, we generalize the earlier option contract approach by introducing continuous quantities. Third, we extend the setting to n parties. For long supply chains, the first-best allocation can be achieved if there is a particular order of renegotiations.