Evaluating fixed price incentive contracts
Evaluating fixed price incentive contracts
This paper considers choosing between different forms of fixed price incentive contracts. The analysis assumes the underlying probability density function for project costs is triangular. The methods of evaluation considered are expected value, certainty equivalence and stochastic dominance.
The latter two methods take into account the typical risk aversion of contractors and clients. The analytical form of project cost and incentive contract adopted offer a robust analysis suitable for a wide variety of practical situations. However, the methods of evaluation described could be applied to other forms of contract and cost distribution.
contracting, risk analysis, dominance, decision making
49-62
Ward, S.C.
ac1bf683-4186-44e7-9f5e-4193ee4d03cd
Chapman, C.B.
a4f4805b-b67d-4c4c-856b-78e01a2c89a0
1995
Ward, S.C.
ac1bf683-4186-44e7-9f5e-4193ee4d03cd
Chapman, C.B.
a4f4805b-b67d-4c4c-856b-78e01a2c89a0
Ward, S.C. and Chapman, C.B.
(1995)
Evaluating fixed price incentive contracts.
OMEGA - The International Journal of Management Science, 23 (1), .
(doi:10.1016/0305-0483(94)00047-E).
Abstract
This paper considers choosing between different forms of fixed price incentive contracts. The analysis assumes the underlying probability density function for project costs is triangular. The methods of evaluation considered are expected value, certainty equivalence and stochastic dominance.
The latter two methods take into account the typical risk aversion of contractors and clients. The analytical form of project cost and incentive contract adopted offer a robust analysis suitable for a wide variety of practical situations. However, the methods of evaluation described could be applied to other forms of contract and cost distribution.
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Published date: 1995
Keywords:
contracting, risk analysis, dominance, decision making
Organisations:
Management
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Local EPrints ID: 35678
URI: http://eprints.soton.ac.uk/id/eprint/35678
ISSN: 0305-0483
PURE UUID: ea6f1a9d-061e-43a8-b522-9eb2128fc66b
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Date deposited: 26 Jun 2006
Last modified: 15 Mar 2024 07:53
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Author:
S.C. Ward
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