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Advantage of Fixed Payment
Analysis with Game Theory
2004/02/16

Contractor
Not participate Participate Opportunity
Loss / Gain
Orderer Big success (+20) ( +15, 0 ) ( +10, +5 ) -5
Success (+10) ( +5, 0 ) ( +5, 0 ) 0
Failure (+0) ( -5, 0 ) ( 0, -5) +5
Contractor
Not participate Participate Opportunity
Loss / Gain
Orderer Big success (+20) ( +15, 0 ) ( +12, +3 ) -3
Success (+10) ( +5, 0 ) ( +2, +3 ) -3
Failure (+0) ( -5, 0 ) ( -8, +3) -3

Now we would like to move from the performance-based payment case to the fixed payment case. In case of the fixed payment, the income of the contractor, i.e. the payment of the orderer, is predefined in the contract before the project starts. And whether the project finishes in success or failure, the orderer has to pay the predefined amount of money to the contractor. Let's try to draw the same matrix as in case of the performance-based payment case. We assume the contractor always get paid 8 units since they always have to invest 5 unit of their resources in order to accomplish this project.