Electronic Resource
Oxford, UK
:
Blackwell Publishing Ltd
Decision sciences
10 (1979), S. 0
ISSN:
1540-5915
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Economics
Notes:
An important question with respect to government incentive contracts that has received little attention is: What alternatives to the current practice of making single-stage choices of incentive sharing rates can lead to situations in which these sharing rates can be chosen under reduced risk or cost uncertainty? This paper provides a decision-theoretic framework that illustrates a possibility of reducing risk, from the viewpoints of both the contracting parties, given some negotiated estimate of costs to be incurred. It is shown that such a possibility can arise in a situation in which it is technically feasible to separate or partition the contractual work into closely related tasks or units. Specifically, it is demonstrated that for a given cost estimate (target cost) and target profit, a set of optimal sharing rates (one for each unit) yields a higher risk-adjusted value of the contract than the single-stage sharing rate for the entire contract.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/j.1540-5915.1979.tb00032.x
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