digital curry

Hidden Action: Will Ferguson (F) consult for an outside client after the funding. Will Ferguson leave the company after the funding. What will prevent VCs from taking the information of the Entrepreneur and give/sell it away to another company they already have a stake in. 1. Reputation 2. More tacit and implict and actual technical knowledge required than just the basic idea for the startup. Participation Constraint and Initial Valuation Initial Valuation directly sets the expected utility from the company and the company share of the financier. So initial valuation is directly related to participation constraint whether or not the agent will accept the contract offered by the principal. To determine participation constraint it is important to consider the opportunity cost. For example the previous employees were treated better since they had more technical knowhow and the impact of their leaving was higher on the company. Position on the board is both a monitoring as well as an incen

Comparative Evaluation Should performance be based on performance of 1. co workers 2. performance of workers elsewhere 3. performance of other companies 2. "Not fair" agent can't control what others do but can act as a performance indicator. Information Intensity Principle If pay takes the form t(z,y) = alpha + beta(z+gy) then beta measure the intensity of the incentives: how much pay varies with effort Optimal intensity depends on four factors: 1. incremental profits from addl effort 2. precision of estimating effort 3. agent's risk tolerance 4. agent's responsiveness to incentives. Monitoring intensity principle 1. Spend more on improving monitoring when incentive intensity Beta is higher. If principle can invest in better measurement/monitoring, then if incentive intensity of high then it is better to have more precise measures of performance. Equal Compensation Effort If agent's effort on multiple desirable activities cannot be separately monitored, t

Some results from class: 1. When principal (P) is neutral and agent A is risk averse - fixed payment contracts. and the principal bears all the uncertainty 2. When the P is risk averse and the agent A is risk neutral then : "Sell the project to the agent". i.e. franchise contarcts. e.g. the agent pays McDonalds to own the franchise - McD gets a fixed payment and the franchise takes all the risk. However in real life both principal and agent will have some kind of risk aversion and so in real life the contract will be something between the two. The contracting timeline: 1. principal designs contract 2. agent accepts of rejects contract (IR contract - forms one variable in the lagrangian later) 3. how hard is agent going to work (Incentive Compatibility Constraint) (forms another variable for the lagrangian later) 4. Uncertainty is resolved, i.e. we have some outcome; important point to consider how do payoffs depend on the outcome of the project - design decision. 5. cont

Finally, after months of the gloomy winter weather - well it was cosy at times, especially in the beginning, but four months is taking it a bit too far :) - today the sun was out! I had almost forgotten what good weather was; But today was awesome! The university was buzzing with so much activity, people out everywhere, music at the DIAG, pretty faces all around :) and the gorgeous sunny weather.............it kind of took me back to my first few days at the university last fall! It was a lovely feeling. My 503 exam went ok - at least I hope so; I haven't yet stopped kicking myself for my stupid answer in 503, having crossed out the right answer to a 10 mark question in the last minute on a whim and written the wrong one. I'm trying to console myself that it was destined but it's a losing battle. The weather was so gorgeous that instead of taking the bus, I got down at the Indian store and walked all the way up home from there! Oh, yes and I had dosa :) I can't wait eno