Incomplete Contracts with Asymmetric Information: Exclusive v. Optional Remedies

Law and economics scholars have always had a strong interest in contract remedies. Perhaps the most explored issue in contract law has been the desirability of various contract remedies, such as expectation damages, specific performance, or liquidated damages, to name the most common. Scholars have been debating for years, from various perspectives, the comparative advantage of these remedies. Yet, most scholars have assumed that each of these remedies is exclusive, and their work has compared a single remedy contract to another single remedy contract. Interestingly, an analysis that assumes these remedies are optional (or cumulative) has not yet been explored, in spite of the fact that contract law provides the non-breaching party with a variety of optional remedies to choose from in case of a breach, and in spite of the fact that parties themselves write contracts which provide such an option. In this paper we attempt to start filling in this gap by studying the relationship between these remedies. Specifically, we study the conditions at which a contract that grants the non-breaching party an option to choose from optional remedies is superior to an exclusive remedy contract. We show that under conditions of double-sided uncertainty and asymmetric information between a seller (who might breach) and a buyer (who never breaches) the interaction of the parties\u27 distributions should determine whether a contract provides for exclusive or optional remedies. Specifically, if the buyer\u27s conditional expected valuation is larger than the seller\u27s conditional expected valuation (in both cases - conditional that their expected valuation is above the buyer\u27s mean valuation), then a contract which provides the buyer an option to choose between liquidated damages or specific performance (or actual damages) is superior. Our analysis in this paper informs transactional lawyers of the relevant economic factors they should consider when deciding the optimal composition of remedies in a given context. Moreover, our analysis is relevant for courts that interpret contracts because it will help them to better understand whether rational parties would have agreed that a particular remedy would be an exclusive remedy or an optional remedy when the language of the contract is ambiguous. Lastly, our analysis provides yet another economic rationale for why courts should enforce parties\u27 liquidated damages clauses even if it seems ex-post over, or under, compensatory. We present a model which shows when parties will agree on a non-exclusive liquidated damages clause. Under such a contract the parties stipulate ex-ante that the buyer will have the option to choose upon breach whether she prefers an optional remedy, such as actual damages or specific performance, to the pre-determined liquidated damages. We focus on the ex-ante design of the contract in light of the new information that the parties anticipate they will gain after they draft the contract. Therefore, we assume that no renegotiation or investments are involved. We demonstrate the optimal way to design contract clauses which takes advantage of the information that the seller and the buyer receive between the time they enter into the contract and the time of the actual breach. We further suggest that parties indeed use such clauses and that courts honor them. After laying out the basic model we provide some extensions to it. As is well known, an exclusive liquidated damages contract is equivalent to granting the seller a call option to breach and pay, where the exercise price is equal to the amount of the agreed liquidated damages. What is perhaps less known is that a non-exclusive, or optional, contract, where the buyer can choose performance, is equivalent to giving the buyer a consecutive call option with the same exercise price. Yet, the consecutive call option to the buyer does not have to have the same exercise price but can rather have a higher one. We call this new contract a two-price contract and show that it is even more efficient than the basic contract we have explored before. Next, we introduce more rounds of sequential options and show that while the regular ex-ante contract can achieve on average about 4 Indeed, in an environment of asymmetric information renegotiation costs are high. More on this below. 90% of the first-best allocative efficiency, an n-rounds contract approaches the first best, as n goes to infinity. We show numerically that within just 4 rounds, 96% of the allocative efficiency can be achieved. Section two describes the legal background against which we have designed our model. Section three surveys the literature that evaluates contract remedies from an economic perspective. Section four presents a simple model with two-sided incomplete information and with a liquidated damages clause. In section four we compare the performance of a regime with optional remedies with a regime of exclusive remedy and then determine the conditions at which each regime should be applied. Section five discusses some interesting extensions meant to approach the first-best allocative efficiency. The appendix provides a more rigorous mathematical demonstration of the model

Ondansetron for Propofol Injection Pain

Propofol injection pain can be the most distressing part of a patient’s peri-operative experience. The current standard of practice is to use intravenous (IV) lidocaine to blunt the pain on injection caused by propofol; however, this does not guarantee a comfortable, satisfactory induction for the patient..

Governance tools for board members : adapting strategy maps and balanced scorecards for directorial action

The accountability of members of the board of directors of publicly traded companies has increased over years. Corresponding to these developments, there has been an inadequate advancement of tools and frameworks to help directorial functioning. This paper provides an argument for design of the Balanced Scorecard and Strategy Maps made available to the directors as a means of influencing, monitoring, controlling and assisting managerial action. This paper examines how the Balanced Scorecard and Strategy Maps could be modified and used for this purpose. The paper suggests incorporating Balanced Scorecards in the Internal Process perspective, ‘internal’ implying here not just ‘internal to the firm’, but also ‘internal to the inter-organizational system’. We recommend that other such factors be introduced separately under a new ‘perspective’ depending upon what the board wants to emphasize without creating any unwieldy proliferation of measures. Tracking the Strategy Map over time by the board of directors is a way for the board to take responsibility for the firm’s performance. The paper makes a distinction between action variables and monitoring variables. Monitoring variables are further divided on the basis of two considerations: a) whether results have been met or not and b) whether causative factors have met the expected levels of performance or not. Based on directorial responsibilities and accountability, we take another look at how the variables could be specified more completely and accurately with directorial recommendations for executives

But Is It Myopia? Risk Aversion and the Efficiency of Stock-Based Managerial Incentives

This paper points out that stock incentives do not lead to myopia unless they result in more emphasis on the short-term than would occur under an optimal contract. It shows that myopia findings relative to the standard used throughout the literature (first-best efficiency) are often reversed when evaluated relative to the relevant standard of optimal contracting. Results reported by the previous literature to be myopia often in fact have excessive emphasis on the long-term. The paper solves in closed-form for the region in parameter space which gives rise to these reversals and shows that it can be arbitrarily largehttp://deepblue.lib.umich.edu/bitstream/2027.42/49369/5/2008Jan16JCarmel.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/49369/1/Visiting-Carmel.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/49369/4/Visiting-Carmel.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/49369/7/1108_2008Jan16JCarmel.pd

Sustainable Financing of Innovative Therapies: A Review of Approaches

The process of innovation is inherently complex, and it occurs within an even more complex institutional environment characterized by incomplete information, market power, and externalities. There are therefore different competing approaches to supporting and financing innovation in medical technologies, which bring their own advantages and disadvantages. This article reviews value- and cost-based pricing, as well direct government funding, and cross-cutting institutional structures. It argues that performance-based risk-sharing agreements are likely to have little effect on the sustainability of financing; that there is a role for cost-based pricing models in some situations; and that the push towards longer exclusivity periods is likely contrary to the interests of industry

The impact of a social norms approach onreducing levels of misperceptions aroundsmokefree hospital entrances amongstpatients, staff, and visitors of a NHShospital: a repeated cross-sectional surveystudy

Background: Smoking is a cause of avoidable morbidity and mortality. In the United Kingdom (UK) the national smoking ban inside hospital buildings is widely adhered to. There is a perception it has led to smokers congregating around hospital entrances (Selbie D. 2016, It’s time for a truly smokefree NHS. Public Health Matters Blog. Public Health England). Efforts to shift social norms and create positive smokefree environments might be strengthened by delivering social norms messages. This study explored the impact of a social norms approach campaign to reduce levels of misperceptions surrounding support for smokefree hospital entrances. Method: Repeated cross sectional study design. Staff, patients, and hospital visitors at Pinderfields National Health Service (NHS) Hospital (Wakefield, United Kingdom (UK)) completed a survey before and after implementation of a public health social norms campaign (n = 481 surveyed before; n = 459 surveyed after). The main outcome measure was difference between perceived and reported levels of support for smokefree hospital entrances. Results: There were high levels of support for smokefree hospital entrances. The majority of participants agreed that patients (n = 849, 90% agreed), staff (n = 863, 92% agreed), and visitors (n = 850, 90% agreed) should not smoke in the hospital entrance. Participants underestimated the proportion of others who self-reported keeping the entrance smokefree. Over 90% of respondents reported not smoking in the hospital entrance, but the perception was that between 50 to 75% of hospital staff, patients, and visitors did not smoke in the hospital entrance. The mean percentage of hospital staff, patients, and visitors who respondents thought did not smoke in entrances was higher for respondents responding after, compared to those responding before, the campaign. There was an overall significant effect of time on attitudes towards smoking in the entrances; in all instances the mean percentage of hospital staff, patients, and visitors the participants believed agreed that hospital entrances should be smokefree was higher for those responding after, compared with before, the campaign. Conclusions: People hold misperceptions of the proportion of people who choose to smoke in the hospital entrance. The social norms approach campaign was associated with a strengthening of positive social norms. Such campaigns should be considered by Trusts as one evidence-based based tactic to denormalise smoking, increase support for smokefree policies

An intervention to support stroke survivors and their carers in the longer term (LoTS2Care): study protocol for a cluster randomised controlled feasibility trial

Background Despite the evidence that many stroke survivors report longer term unmet needs, the provision of longer term care is limited. To address this, we are conducting a programme of research to develop an evidence-based and replicable longer term care strategy. The developed complex intervention (named New Start), which includes needs identification, exploration of social networks and components of problem solving and self-management, was designed to improve quality of life by addressing unmet needs and increasing participation. Methods/Design A multicentre, cluster randomised controlled feasibility trial designed to inform the design of a possible future definitive cluster randomised controlled trial (cRCT) and explore the potential clinical and cost-effectiveness of New Start. Ten stroke services across the UK will be randomised on a 1:1 basis either to implement New Start or continue with usual care only. New Start will be delivered by trained facilitators and will be offered to all stroke survivors within the services allocated to the intervention arm. Stroke survivors will be eligible for the trial if they are 4–6 months post-stroke and residing in the community. Carers (if available) will also be invited to take part. Invitation to participate will be initiated by post and outcome measures will be collected via postal questionnaires at 3, 6 and 9 months after recruitment. Outcome data relating to perceived health and disability, wellbeing and quality of life as well as unmet needs will be collected. A ‘study within a trial’ (SWAT) is planned to determine the most acceptable format in which to provide the postal questionnaires. Details of health and social care service usage will also be collected to inform the economic evaluation. The feasibility of recruiting services and stroke survivors to the trial and of collecting postal outcomes will be assessed and the potential for effectiveness will be investigated. An embedded process evaluation (reported separately) will assess implementation fidelity and explore and clarify causal assumptions regarding implementation. Discussion This feasibility trial with embedded process evaluation will allow us to gather important and detailed data regarding methodological and implementation issues to inform the design of a possible future definitive cRCT of this complex intervention. Trial Registration ISRCTN38920246. Registered 22 June 2016

Do incentives, reminders or reduced burden improve healthcare professional response rates in postal questionnaires?:Two randomized controlled trials

BACKGROUND: Healthcare professional response rates to postal questionnaires are declining and this may threaten the validity and generalisability of their findings. Methods to improve response rates do incur costs (resources) and increase the cost of research projects. The aim of these randomised controlled trials (RCTs) was to assess whether 1) incentives, 2) type of reminder and/or 3) reduced response burden improve response rates; and to assess the cost implications of such additional effective interventions. METHODS: Two RCTs were conducted. In RCT A general dental practitioners (dentists) in Scotland were randomised to receive either an incentive; an abridged questionnaire or a full length questionnaire. In RCT B non-responders to a postal questionnaire sent to general medical practitioners (GPs) in the UK were firstly randomised to receive a second full length questionnaire as a reminder or a postcard reminder. Continued non-responders from RCT B were then randomised within their first randomisation to receive a third full length or an abridged questionnaire reminder. The cost-effectiveness of interventions that effectively increased response rates was assessed as a secondary outcome. RESULTS: There was no evidence that an incentive (52% versus 43%, Risk Difference (RD) -8.8 (95%CI −22.5, 4.8); or abridged questionnaire (46% versus 43%, RD −2.9 (95%CI −16.5, 10.7); statistically significantly improved dentist response rates compared to a full length questionnaire in RCT A. In RCT B there was no evidence that a full questionnaire reminder statistically significantly improved response rates compared to a postcard reminder (10.4% versus 7.3%, RD 3 (95%CI −0.1, 6.8). At a second reminder stage, GPs sent the abridged questionnaire responded more often (14.8% versus 7.2%, RD −7.7 (95%CI −12.8, -2.6). GPs who received a postcard reminder followed by an abridged questionnaire were most likely to respond (19.8% versus 6.3%, RD 8.1%, and 9.1% for full/postcard/full, three full or full/full/abridged questionnaire respectively). An abridged questionnaire containing fewer questions following a postcard reminder was the only cost-effective strategy for increasing the response rate (£15.99 per response). CONCLUSIONS: When expecting or facing a low response rate to postal questionnaires, researchers should carefully identify the most efficient way to boost their response rate. In these studies, an abridged questionnaire containing fewer questions following a postcard reminder was the only cost-effective strategy. An increase in response rates may be explained by a combination of the number and type of contacts. Increasing the sampling frame may be more cost-effective than interventions to prompt non-responders. However, this may not strengthen the validity and generalisability of the survey findings and affect the representativeness of the sample