production flexibility as a motive for multinationality this paper examines how uncertainty in future operating costs at the time of undertaking long lived and irreversible capital investment projects may provide an incentive for multinational production this incentive may be present even if firms are risk neutral as long as they face a downward sloping demand curve the lower the international correlation between marginal cost shocks and the lower the elasticity of demand the greater the benefit to establishing plants in different countries however even if cost fluctuations are perfectly correlated internationally there may still be gains from multinational production

operational hedging strategies and competitive exposure to exchange rates this paper investigates the impact of operational flexibility on firms economic exposure to currency fluctuations in the presence of global competition we consider a global firm who sells as a monopolist in the domestic market and also sells to a foreign market facing competition from a local competitor of certain capacity we compare the effects of two operational strategies of the global firm namely matching currency footprints natural hedge and the capacity pooling strategy with allocation flexibility for a two stage stochastic model we derive the optimal capacity and selling decisions for the global firm and from the comparative statics analysis of our model we infer useful managerial insights 1 we find that operational flexibility enables the global firm to exploit the possible high exchange rate i e devalued home currency realizations for profit improvement and thus increases in the long run the firm s expected profit 2 furthermore operational flexibility allows for downside risk control as the exchange rate becomes more volatile since the resource pooling option cleverly exercised minimizes the impact of unfavorable currency realizations 3 the global firm s operational flexibility increases its competitor s downside risk but may also benefit the competitor s expected profit since a flexible global firm may decide not to compete when the exchange rate is not favorable in conclusion our paper substantiates that natural hedge is not effective from a profit maximization perspective we clearly illustrate the robust profit maximizing performance and reasonable downside risk control of operational hedging approaches which rely on the clever exercising of operational flexibility options such as resource pooling and allocation in handling competitive exposure to fluctuating exchange rates

public goods as characteristics of non market commodities in benefit cost analysis it is useful to model public goods as the quality of privately consumed nonmarketed goods this strategy is often pursued in valuing environmental amenities the theoretical foundations of this model have not been fully developed in this paper comparative statics results are derived for quality changes of nonmarket goods the results reveal some common misconceptions about welfare measurement of quality changes conditions are presented for a quality induced change in the marshallian consumer surplus of the nonmarket good to approximate the true compensated welfare measure the conditions are equally necessary for obtaining exact welfare measures copyright 1993 by royal economic society

make and buy balancing bargaining power abstract we analyze the optimal procurement of labor which can be supplied either internally based on wage negotiations or acquired at terms negotiated with an external subcontractor the novel feature of our model is that the subcontractor s bargaining power is a function of the proportion of output outsourced we demonstrate analytically how multiple sourcing emerges as an organizational mechanism to balance cost advantages associated with outsourcing against a subcontractor s increased bargaining power we find that the optimal proportion of outsourcing is lower with sequential negotiations than with simultaneous negotiations if the supplier to first negotiate can foreclose subsequent negotiations

a diagrammatic exposition of weak complementarity and the willig condition this article provides a graphical explanation for one of the most important restrictions to utility functions used in revealed preference approaches for measuring the demand for public goods and product quality weak complementarity it also describes how the willig condition is an important element along with weak complementarity in measuring hicksian consumer surplus for changes in public goods or quality using marshallian demand curves

investments to create bargaining power the case of franchising hybrid organizational forms such as franchise systems join two or more independent parties under a contract the ability of each party to achieve its goals depend upon the relative bargaining power in the relationship established by the contract using transaction cost economics and porter s 1980 characterization of sources of bargaining power this paper argues that the franchisor can make investments in activities such as tapered integration and buyer selection to increase its bargaining power and decrease conflict and litigation in a franchise system specifically tapered integration owning some units while franchising others selecting inexperienced franchisees and employing a long training program are predicted to increase the franchisor s bargaining power and the franchisee s compliance with franchisor standards an empirical analysis of litigation in restaurant franchise systems supports the theoretical hypotheses copyright 2000 john wiley sons ltd

unwanted effects of european union environmental policy to promote a post carbon industry the case of energy in the european ceramic tile sector global warming combined with low carbon transition plans is threatening the future of high energy consumption industry sectors in the european union eu the need to respond to environmental challenges is demonstrated by support for international level energy policies and legal requirements such as the kyoto protocol which the eu supports and increased eu level environmental legislation and energy policies the effect of these initiatives is gradually transforming industrial activities in the eu however since not all countries have adopted these policies evaluation of their net effect needs to take account also of side effects such as delocalization of industry activity and the legal environmental frameworks in the countries where companies have chosen to relocate this paper analyses eu energy policy and its impact on a particular energy intensive industry the european ceramic tile sector the discussion in this paper is not about the purpose of eu legislation but about its effects on a specific industry the effect of policy on industry is not a new topic but the question of the unwanted effects of environmental and energy policy on european industry is becoming more relevant as the struggle to achieve a post carbon europe increases in focussing on a specific set of eu legislation on a particular industry this article adds to the debate by showing the negative effects of policy mechanisms the need for a scientific evaluation of the systemic changes required for a transition to a resource efficient green and competitive low carbon economy outlined in the 7th environment action programme is highlighted it is suggested that the eu should periodically re evaluate its emissions trading scheme legislation to include specific actions and a follow up system which would prevent the best performing environmental companies from delocalizing or shutting down

operational flexibility and market valuation of earnings this paper examines the association between the stock returns and accounting earnings of firms that have different levels of operational flexibility operational flexibility is a firm s ability to respond profitably to environmental fluctuations by shifting factors of production within a multinational network of subsidiaries the geographic breadth and depth of a firm s multinational network are used as indicators of operational flexibility we find a significantly greater coefficient relating stock returns and accounting earnings for multinational firms that operate in many countries but limit their concentration in any one foreign country than for other multinational firms or domestic firms this coefficient is significantly smaller for multinational firms whose foreign subsidiaries are highly concentrated in a few countries when all multinational firms are pooled together we find their earnings returns association does not differ from that of domestic firms copyright 1999 john wiley sons ltd

valuing environmental resources through demand for related commodities we examine the revealed preference theory underlying the welfare analysis of public goods e g environmental quality by observing the consumption of related commodities inspired by larson 1991 and ebert 1998 and extended from eom and larson 2006 an empirical strategy is formulated consistent with the theory of uniquely deriving use and nonuse values for a change in the public good we show that the weak complementarity assumption and the willig condition the common preference assumptions used to support the revealed preference methods for non market valuation may be tested as parameter restrictions a study of water quality valuation is presented to illustrate the proposed empirical strategy results show that the weak complementarity assumption and the willig condition generally do not hold in the case study and the consumer surplus derived from the indirect valuation method deviates largely from the exact welfare measures

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

strategic second sourcing by multinationals multinationals often serve foreign markets by exporting as well as by investing directly in foreign production facilities we argue that if the multinational competes in an oligopolistic market characterized by strategic complements then there are strategic reasons to use two production facilities committing to a second source allows the firm to keep average cost low while increasing its marginal cost the increase in marginal cost softens product market competition resulting in higher profits we argue that this theory also has implications for the make or buy literature in production management and the literature on second sourcing in industrial organization

on vertical relations and the timing of technology adoption we study the timing of new technology adoption in markets with input outsourcing and thus with vertical relations we find that technology adoption can take place earlier when firms engage in input outsourcing than when they produce the input in house hence the presence of vertical relations can accelerate the adoption of a new technology we also find that particular features of a vertically related market such as the distribution of bargaining power and the contract type through which trading is conducted can crucially affect the speed of technology adoption

reconsidering the economics of demand analysis with kinked budget constraints this paper has two objectives first we identify a problem with the ability of the discrete continuous choice framework and conditional demand functions to fully describe consumer preferences in the presence of kinked budget constraints second we propose and illustrate an alternative preference based method for estimating consumer responses to price changes under these conditions this framework recognizes that commitments to commodities such as pools or outdoor landscaping influence how water consumption responds to price changes as part of the long run consumption adjustments with microdata on household choices this approach could be used to design increasing block rate structures that recognize the differences in water consumption responses with these commitments

on the measurement of welfare for market and nonmarket goods a numerical approach extending vartia s 1983 framework the paper presents a simple numerical approach to the measurement of welfare for market and nonmarket goods on the basis of an incomplete mixed demand system the method allows the determination of exact welfare measures it provides a flexible and well founded alternative to ad hoc methods based on consumer surplus

wage fairness in a subcontracted labor market abstract labor market subcontracting is a global phenomenon this paper presents a theory of wage fairness in a subcontracted labor market where workers confront multi party employment relationships and deep wage inequities between regular and subcontractor mediated hires we show that subcontracting derives its appeal from a downward revision of workers fair wage demand when producers delegate employment decisions down the supply chain furthermore subcontracting creates a holdup problem resulting in wages that workers deem unfair along with adverse worker morale consequences in equilibrium these insights reveal the efficiency costs of subcontracting as an employer strategy to redress workers demand for fair wages

endogenous games and equilibrium adoption of social norms and ethical constraints abstract we consider a situation in which games are formed endogenously in two senses 1 there is a pregame in which agents choose to learn a subset of all feasible strategies and can then employ only these strategies in subsequent play and 2 agents choose their game partners through a costly search process we show that at any subgame perfect equilibrium agents will constrain their action sets in the pregame in such a way that a single social norm prevails thus all agents in a society will abide by the same ethical standard although what standard this will be cannot be predicted we also show that these are essentially the only spe outcomes we suggest that this provides at least a partial explanation for experimental observations that agents apparently choose strategies that do not maximize their payoffs

impact of sourcing flexibility on the outsourcing of services under demand uncertainty abstract this paper investigates the relationship between market conditions and the value and use of sourcing flexibility for service processes we develop and analyze a series of models and we derive expressions for the optimal switching decision the value of the option to outsource the value of the option to backsource and the probability and timing of switches between the alternative sources one contribution is the models and associated derivations which are largely new to the literature and may serve as a tool to support service sourcing plans and decisions the second contribution is a series of results with managerial implications 1 the probability of outsourcing is generally increasing in volatility for high skill process and decreasing in volatility for low skill processes earlier work has found that the hysteresis band is increasing in volatility which is interpreted as an indicator of increasing organizational inertia we also find that the hysteresis band is increasing in volatility but interestingly for the case of high skill processes organizational inertia tends to be decreasing in volatility 2 the option to backsource is generally more valuable for high skill processes than for low skill processes this result suggests that investments to make it easier to backsource should have a higher priority for high skill processes 3 the value of the option to backsource a high skill service process can be decreasing in volatility the result suggests that a rather nuanced consideration of volatility is in order when considering investments in the flexibility to backsource a high skill process

optimal operating policies for multiplant stochastic manufacturing systems in a changing environment this paper addresses the horizontal coordination between production units located in different countries within a supply chain in a changing environment the model incorporates 1 congestion and delay through uncertainties in demand and processing times 2 a changing production cost environment through uncertainty in an environmental state such as the exchange rate and 3 allowing production to stock the main contribution of the paper is to characterize the optimal production policy assuming no switchover cost as a barrier type control policy for a series of models for each plant there is a barrier function defined on the environmental state that gives the total worldwide stock level barrier this plant should be operated if and only if the stock level is below this barrier the authors also show that in a simple setting of two plants in different countries the barrier functions are not always monotone in the exchange rate even when the production costs are the authors present a condition under which the control barriers are shown to be monotone under this condition and with only two plants it is optimal to follow a primary secondary plant policy in which given a fixed environmental state it is optimal to operate both plants when stock is low only the primary plant when stock is moderate and neither when stock is high furthermore the roles of the plants switch as the environmental state passes through the equal production cost state in addition the firm seeks to carry the most stock as a hedge against future environmental state moves when one plant is significantly cheaper than the other the firm seeks to carry the least stock when both plants are equally costly to operate

optimal investment in product flexible manufacturing capacity this paper presents a model and an analysis of the cost flexibility tradeoffs involved in investing in product flexible manufacturing capacity flexible capacity provides a firm with the ability to respond to a wide variety of future demand outcomes but at the expense of the increased cost of acquiring flexible manufacturing capacity as compared with dedicated or nonflexible capacity we formulate the product flexible manufacturing capacity investment decision as a two stage stochastic program in the first stage the firm must make its investment decision in manufacturing capacity before the resolution of uncertainty in product demand in the second stage after demand for products are known the firm implements its production decisions constrained by the first stage investments the main contributions of this paper are threefold first we develop a model of the firm s flexible manufacturing investment decision that conceptually captures some of the key characteristics of this complex decision probl

exchange rates and the choice of ownership structure of production facilities the aim of this research is to study the effects of real exchange rates on the long term ownership strategies of production facilities of firms entering foreign markets among the strategies considered are exporting exp joint ventures with local partners jv and wholly owned production facilities wos in the foreign country our research takes a first step in modeling the influence of exchange rates on the choice and dynamic adjustment of such strategies the insights obtained from our modeling analysis are then translated into testable hypotheses and empirically verified with the use of firm level data from u s multinational corporations both at the firm and a more aggregate level an insightful result of our model is the identification of a hysteresis phenomenon that characterizes switching behavior between strategies in the presence of switchover cost the magnitude of the hysteresis band which is a measure of the inertia associated with keeping the current ownership structure is affected by a multiplicity of factors such as exchange rate volatility and market power of the entering firm analytical and numerical results on the effects of such factors on the hysteresis band are provided the four testable hypotheses generated from our modeling analysis are rigorously tested with the use of a multinomial logit model on data obtained from the harvard multinational enterprise database and a data set maintained by the bureau of economic analysis the u s department of commerce the empirical results strongly support our insights that relatively depreciated real exchange rates i e weak home currency favor a the jv over the wos and b exp mode over the wos or jv finally we summarize our results into useful guidelines for global production managers

further results on willingness to pay for nonmarket goods abstract some implications of substitution relationships between private and public goods for measuring the value of changes in nonmarket goods such as environmental quality are explored if a market good is hicks neutral to quality for some price vector the total value of discrete changes in quality consisting of both use and nonuse value can be measured from empirical demand coefficients a plausible motivation for neutrality is developed in the contexts of specifying incomplete demand systems for weak complements to quality and measuring nonuse value when the consumption of weak complements is held at zero previous results on bounding marginal willingness to pay for nonmarket goods are also strengthened

dodging bullets the heterogeneous effect of political violence on greenfield fdi the relationship between political violence and greenfield foreign direct investment is contingent on the type of violence characteristics of the investment receiving sector and extent to which the investing firm is geographically diversified this paper presents an analysis with a dynamic fixed effects model for a panel of 90 developing countries from 2003 to 2012 the analysis shows that nationwide political conflict is negatively associated with total and non resource related greenfield foreign direct investment but not with resource related greenfield foreign direct investment the insensitivity to political conflict of multinational firms in the resource sector is associated with the high profitability of natural resource extraction and the companies geographic constraints on location choice during the period of estimation in the non resource sector the less geographically diversified firms are most sensitive to the risk of conflict

optimizing an international network of partially owned plants under conditions of trade liberalization for the last four decades the preferred economic philosophy in much of latin america was that of import substituting industrialization as a result multinational corporations mncs approached different countries with the expectation that each plant would primarily serve its domestic market each of these plants was partially owned by the mnc beginning in the late 1980s latin america countries began decreasing barriers to cross border trade this made competition between the units belonging to a common network possible for the first time operations which had subsisted side by side in spite of differences in costs and quality of output and which were under the control of different owners now found themselves in competition with one another and having to rationalize their efforts in this paper we analyze the problem of operating a network of plants under conditions of free trade and exchange rate fluctuations when the firms that compose it are partially owned subsidiaries of an mnc a model of three subsidiaries and four countries is developed for one industry based on actual corporate and economic data we study the problem of coordinating the activities of the subsidiaries and allocating the gains arising from coordination

asymmetric corporate exposures to foreign exchange rate changes research examining firms economic exposures to exchange rate movements has not differentiated periods of foreign currency appreciation and depreciation when estimating exposure coefficients recent theoretical developments regarding real options and pricing to market suggest corporate exposures may be asymmetric i e the financial performance impact of a foreign currency appreciation may not be offset by the currency s depreciation our empirical analysis indicates that for the small percentage of u s manufacturing firms exposed to currency appreciations or depreciations their exposures are asymmetric 1998 john wiley sons ltd

approximating wtp and wta for environmental goods from marginal willingness to pay functions abstract willingness to pay wtp and willingness to accept wta for a change in the quantity of an environmental good can be represented by corresponding hicksian welfare measures the paper suggests a simple method of approximating wtp and wta given the information about the marginal willingness to pay mwtp for it it demonstrates that a polynomial based on the mwtp function allows to approximate the hicksian measures which may differ considerably much better than consumer s surplus in quantity space

can weak substitution be rehabilitated this paper develops a graphical analysis and an analytical model that demonstrate how weak substitution can be used for non market valuation weak complementarity and weak substitution represent preference restrictions that allow us to develop equivalent price changes to describe quantity or quality changes in non market goods the price changes are hicksian equivalents in that they yield the same utility changes as would the quantity or quality changes after discussion of several potential applications of weak substitution the paper develops the parallel between the restriction and recent strategies from modeling differentiated goods

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

coordinating investment production and subcontracting we value the option of subcontracting to improve financial performance and system coordination by analyzing a competitive stochastic investment game with recourse the manufacturer and subcontractor decide separately on their capacity investment levels then demand uncertainty is resolved and both parties have the option to subcontract when deciding on their production and sales we analyze and present outsourcing conditions for three contract types 1 price only contracts where an ex ante transfer price is set for each unit supplied by the subcontractor 2 incomplete contracts where both parties negotiate over the subcontracting transfer and 3 state dependent price only and incomplete contracts for which we show an equivalence result while subcontracting with these three contract types can coordinate production decisions in the supply system only state dependent contracts can eliminate all decentralization costs and coordinate capacity investment decisions the minimally sufficient price only contract that coordinates our supply chain specifies transfer prices for a small number 6 in our model of contingent scenarios our game theoretic model allows the analysis of the role of transfer prices and of the bargaining power of buyer and supplier we find that sometimes firms may be better off leaving some contract parameters unspecified ex ante and agreeing to negotiate ex post also a price focused strategy for managing subcontractors can backfire because a lower transfer price may decrease the manufacturer s profit finally as with financial options the option value of subcontracting increases as markets are more volatile or more negatively correlated

toward a new conception of the environment competitiveness relationship accepting a fixed trade off between environmental regulation and competitiveness unnecessarily raises costs and slows down environmental progress studies finding high environmental compliance costs have traditionally focused on static cost impacts ignoring any offsetting productivity benefits from innovation they typically overestimated compliance costs neglected innovation offsets and disregarded the affected industry s initial competitiveness rather than simply adding to cost properly crafted environmental standards can trigger innovation offsets allowing companies to improve their resource productivity shifting the debate from pollution control to pollution prevention was a step forward it is now necessary to make the next step and focus on resource productivity

another theorem on using market demands to determine willingness to pay for non traded goods abstract this paper contains a proof of the following theorem let e1 and e1 denote an agent s expenditures on two groups of goods which are substitutes and complements to a non traded good suppose that both the agent s income and the quantity of the non traded good provided him have a positive effect on these two amounts then these effects can be used to place upper and lower bounds on the agent s marginal willingness to pay for the non traded good

real options theory in international business the last quarter century has witnessed substantial growth in applications of real options theory rot to international business ib research in this review we explicate the core rot concepts in the ib context and discuss the contributions of rot based research to three core ib issues timing and scale of market entry or exit entry mode and governance form and the role of multinational networks based on our review we propose a holistic rot view of the multinational enterprise that synthesizes the insights of existing studies finally to move the field forward we highlight key questions and challenges in current rot based work provide a more precise definition of exogenous and endogenous uncertainty suggest empirical designs to test unique rot predictions and explore areas where rot can be combined with other theoretical perspectives to better understand ib phenomena

the newsvendor problem in a global market optimal centralized and decentralized control policies for a two market stochastic inventory system the global markets of today offer to the style goods producer more selling opportunities and pose new challenges in production planning and coordination from a production management standpoint the opportunity to exploit the difference in timing of the selling season of geographically dispersed markets for style goods is important for improving the firm s profitability in this paper we examine the above issue with an insightful model of a producer of style goods selling the goods to two markets a primary and a secondary market with nonoverlapping selling seasons we refer to this problem as the global newsvendor problem for the above two market stochastic inventory systems we first develop optimal centralized control policies then we demonstrate the suboptimality of decentralized production control policies with the production centers at each market treated as independent profit centers and a constant transfer price being used to coordinate their production we propose as an effective alternative a decentralized production control structure with a nonlinear pricing scheme for production coordination among centers administered through an intermediate organizational unit in our modeling we explicitly consider the effects of exchange rate uncertainty on the production planning decisions

an evolutionary approach to understanding international business activity the co evolution of mnes and the institutional environment this paper examines the co evolution of mne activities and institutions external and internal to the firm we develop a theoretical framework for this analysis that draws on the more recent writings of douglass north on institutions as a response to complex forms of uncertainty associated with the rise in global economic interconnectedness and of richard nelson on the co evolution of technology and institutions we link historical changes in the character of mne activities to changes in the institutional environment and highlight the scope for firm level creativity and institutional entrepreneurship that may lead to co evolution with the environment we argue that the main drivers for institutional entrepreneurship are now found in the increasing autonomy of mne subsidiaries thus mne agency derives from more decentralized forms of experimentation in international corporate networks which competence creating nodes of new initiatives can co evolve with local institutions unlike most other streams of related literature our approach connects patterns of institutional change in wider business systems with more micro processes of variety generation and experimentation within and across individual firms this form of co evolutionary analysis is increasingly important to understanding the interrelationships between mne activities and public policy

a stochastic model for risk management in global supply chain networks abstract with the increasing emphasis on supply chain vulnerabilities effective mathematical tools for analyzing and understanding appropriate supply chain risk management are now attracting much attention this paper presents a stochastic model of the multi stage global supply chain network problem incorporating a set of related risks namely supply demand exchange and disruption we provide a new solution methodology using the moreau yosida regularization and design an algorithm for treating the multi stage global supply chain network problem with profit maximization and risk minimization objectives

weak complementarity path independence and the intuition of the willig condition abstract weak complementarity is usually invoked for valuing public goods using information on private goods however using uncompensated demands requires a second condition the willig condition this paper present an intuitive explanation of the willig condition and shows that the alternative versions are equivalent to a path independence condition for line integrals this condition is fulfilled for compensated demands but not uncompensated demands except in restrictive special cases it is shown that this is a type of quasi homotheticity and requires that the income flexibility of quality must equal the income elasticity of the weak complement the importance and restrictiveness of the willig condition are shown using three alternative functional forms

do multinationals operate flexibly theory and evidence do multinational enterprises operate flexibly i e do they shift production in response to currency changes three theoretical perspectives are developed flexibility optimism premised on information and sunk cost advantages takes a macro efficiency perspective and predicts sizable responses flexibility pessimism premised on inertia and internal opportunism takes an organizational perspective and predicts sticky responses flexibility realism premised on the view that to be flexible in the current period multinational enterprises need to have planned and invested accordingly in previous periods predicts positive but relatively modest responses empirical analysis spanning the period 1977 1993 finds that multinational enterprises systematically exploit currency shifts but even in the face of large exchange rate changes their operational responses are relatively modest the results appear most consistent with flexibility realism and this hypothesis is selected over the alternatives considered

partial outsourcing monitoring cost and market structure we investigate firms outsourcing decisions when production requires a large number of inputs the novelty of our approach is that it provides a testable framework to characterize the equilibrium fraction of outsourced inputs we demonstrate that intensified competition in a cournot market for the final good typically enlarges the set of outsourced components relative to those produced in house the proportions of outsourced inputs are found to be strategic substitutes independently of whether firms compete with respect to quantities or prices in the market for the final good jel classification d20 l22 sous traitance partielle cout de monitarisation et structure de marche l auteur examine les decisions de sous traitance des entreprises quand la production reclame un grand nombre d intrants la nouveaute de l approche proposee est qu elle fournit un cadre conceptuel testable pour definir en equilibre la fraction des intrants obtenue en sous traitance on montre qu une concurrence plus intense pour le produit final dans un marchea la cournot accroit l ensemble des intrants obtenus en sous traitance par rapport a l ensemble de ceux qui sont produit a l interne il s avere que les proportions des divers intrants obtenus en sous traitance sont des substituts que les firmes se concurrencent par les prix ou les quantites dans le marche du produit final

global plant capacity and product allocation with pricing decisions trade offs in global manufacturing decisions involve markets resource costs trade barriers currency exchange rates joint ventures and investments we develop a model that optimizes plant investment decisions while ensuring that the plant investment overhead is optimally absorbed by products produced from that plant the model also simultaneously determines prices by products and countries the special structure of the model is exploited to construct a fast solution procedure the model is used to study the implications of labor cost transportation cost demand and import tariff on production quantities investment and overhead absorption pattern implications of changes in other global parameters such as local content rule local taxes size of the market in a country and long term exchange rates are also studied

timing of entry in international market an empirical study of u s fortune 500 firms in china this study attempts to explain the timing of entry of firms in international markets based on the existing literature we propose a framework that consists of firm specific factors industry market factors and host country factors empirical results based on the entry information of u s fortune 500 firms in china between 1979 and 1996 show that larger firms with greater level of internalization and scope economies are likely to enter this foreign market earlier in addition non equity modes competitors behavior in the product market and lower levels of country risk are significantly associated with early entry

efficient methods of measuring welfare change and compensated income in terms of ordinary demand functions a utility maximizing consumer with a completely known system of ordinary demand functions q h p c is considered let p qo and p q be two arbitrary equilibrium situations the problem is to evaluate in which of the situations the utility is higher without knowing the utility function revealed preference theory tells that the ordinary demand functions which are in principle observable contain enough information to solve the problem remaining difficulties are therefore mainly computational we present how the compensated income c i c p qo and the compensated demand h p cl1 are calculated with arbitrary accuracy using only the ordinary demand system our two efficient algorithms also have interesting interpretations in terms of index numbers and consumer surplus measures

empirical strategies for incorporating weak complementarity into consumer demand models abstract this article appraises existing empirical strategies for incorporating weak complementarity into consumer demand models the repackaging integrating back and discontinuity approaches are evaluated in terms of their behavioral implications and potential usefulness for applied research the appraisal suggests that the repackaging approach offers the most flexibility and tractability in the multi good demand system framework but the integrating back approach holds considerable promise in the single good context a multi good empirical comparison suggests that qualitatively similar policy inference arises from different repackaging approaches

the dual structure of incomplete demand systems integrability of incomplete demand systems is discussed the concepts of weak integrability quasi expenditure function quasi indirect utility function and quasi utility function are defined their relationships to the expenditure function indirect utility function and utility function are developed the dual structure of the quasi functions permits exact welfare analysis and reveals the conditional preference structure for the commodities of interest new results relating the uniqueness and exactness of consumer s surplus to the structure of the expenditure and indirect utility functions are obtained

organizational design and technology choice under intrafirm bargaining comment the authors consider a wide number of applications of an intrafirm bargaining game within organizations where employees and the firm engage in wage negotiations under their presumption that contracts cannot bind employees to the organization the resulting stable wage and profit profiles give rise to an objective function for the firm that places weight on inframarginal profits in an economically significant manner the authors in turn employ this methodology to explore applications of organizational design hiring and capital decisions training and cross training the importance of labor and asset specificity managerial hierarchies preferences for unionization responses to competition and internal capital budgeting copyright 1996 by american economic association

the impact of order and mode of market entry on profitability and market share market share performance and profitability of overseas business activities has long been an important issue in international business in this study we explore the impact of order and mode of market entry into an overseas market we find that early entrants have significantly higher market shares and profitability than late followers we also find that equity joint ventures have a higher profitability than either wholly owned operations or contractual joint ventures a significant interaction exists between order and mode of market entry as expected firm efficiency and size affect the performance of firms these results are based on the business activities of a sample of 14 466 foreign firms in china in 1995

a general unconstrained model for transfer pricing in multinational supply chains multinational supply chains operate in more than one country or tax jurisdiction and face decision problems concerned with trade flows of resources products and services transfer prices and allocation of transport costs between their divisions these decisions must consider for the sake of optimality corporate and governmental parameters such as the payment of dividends and royalties ownership of and control over subsidiaries income taxes differentials duties and quotas etc in this paper we generalize and extend the theory of the multinational firm to the case of multinational supply chains we propose a model that is more general and comprehensive than the previous ones proposed in the literature to be more specific our model integrates many of the previous research factors and includes new ones such as transport costs and duty drawbacks which are critical for supply chains that operate under international trade regulations under the maximization of the repatriated earnings objective we study the optimality conditions of the corporate decision variables to derive managerial guidelines and to determine how decisions regarding trade quantities transfer prices and transport cost allocations affect the amount of taxes to be paid to host governments as well as the total after tax repatriated earnings of the corporation

the integration of subsidiary political activities in multinational corporations just as the competitive activities of mnc subsidiaries exhibit differentiation as well as integration so might mnc political activities this paper combines the literatures on international business government interactions and on multinational corporations with resource dependence theory as a foundation we develop and test hypotheses on factors that might influence the degree to which subsidiary political activities are integrated with affiliated organizations we find that subsidiary strategic integration and the economic integration of the host country significantly influence integration of subsidiary political activities

a larger slice or a larger pie an empirical investigation of bargaining power in the distribution channel this research aims to provide insights into the determinants of channel profitability and the relative power in the channel by considering consumer demand and the interactions between manufacturers and retailers in an equilibrium model we use the nash bargaining solution to determine wholesale prices and thus how margins are split in the channel equilibrium margins are a function of demand primitives and of retailer and manufacturer bargaining power bargaining power is itself a function of exogenous retail and manufacturer characteristics the parties bargaining positions are determined endogenously from the estimated substitution patterns on the demand side the more they have to lose in a negotiation relative to an outside option the weaker the bargaining position we use the proposed bargaining model to investigate the role of the three main factors that have been blamed for the power shift from manufacturers to retailers in recent years firm size increases store brand introductions and service level differentiation in our empirical analysis of the german market for coffee we find that bargaining power varies among the different manufacturer retailer pairs this result suggests that bargaining power is not an inherent characteristic of a firm but rather depends on the negotiation partner we are able to confirm empirically previous theoretical findings that there can be cases where the slice of the pie that goes to one of the channel members may decrease but the overall pie increases and compensates for the smaller share of profits

the international control conundrum the case of hyperinflationary subsidiaries standard methods for financial controls of multinational corporations mncs foreign subsidiaries generally provide inadequate managerial support under conditions of extreme environmental turbulence resulting in a highly distortive performance evaluation system this article examines the specific conditions of monetary hyperinflation and how existing control systems should be upgraded or environmentalized in order to cope with such operating conditions a taxonomy of hyperinflationary environments and a control model based upon variance analysis aimed at smoothing excessive swings in the performance of foreign operations is developed thereby correcting for some of the dysfunctionalities in the traditional planning and control processes

reconsidering the use of hicks neutrality to recover total value abstract in this paper i reconsider the use of hicks neutrality for recovering total value for a change in an environmental good i clarify the need to adjust expenditures and explain how numerical techniques can be used in approximating these adjustments i show that the circumstance believed to support hicks neutrality weak neutrality at the choke price vector is a case of weak complementarity i mathematically demonstrate that the necessary degree of hicks neutrality is unlikely to be satisfied i derive the ensuing relative bias and show its usefulness in selecting goods which may approach hicks neutrality

bounds on the willingness to pay for non traded goods a possibility theorem abstract this note contains a proof of the following theorem if an agent s preferences for traded goods are known and if the quantity of a non traded good provided him alters his demand for traded goods then it is possible to place bounds on his willingness to pay for increments in this quantity

recovering weakly complementary preferences abstract this paper demonstrates a method for recovering weakly complementary expenditure and indirect utility functions while integrating back from marshallian demand specifications that do not intrinsically embody weak complementarity weak complementarity of a good with quality provides information about how the constant of integration over price must behave with respect to quality and this information can be incorporated into the process of recovering preferences the weakly complementary expenditure and indirect utility functions are recovered for the linear demand specification and for the stone geary utility function with any value of the subsistence parameter

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

models of the multinational enterprise flexibility is identified as the hallmark of recent modelling of the multinational enterprise the focus on flexibility is a response to the rationalization and restructuring of international business which has occurred since the end of the golden age of western economic growth flexibility has been south in factor markets intermediate product markets and markets for final products it has been sought by both governments and firms flexible firms are attracted to locations with flexible host governments this article contrasts the modern research agenda based on flexibility with the more traditional research agenda which predominates in the literature reviewed by caves 1996

the regional dimension of mnes foreign subsidiary localization this paper examines the regional effect of mnes foreign subsidiary localization we hypothesize that the number of subsequent foreign subsidiaries in a country is in part determined by a firm s prior foreign subsidiary activity at the regional level we test our hypotheses using data on 1076 japanese mnes that created 3466 foreign subsidiaries 1837 wholly owned fdis and 1629 joint ventures over the period 1996 2001 we use a multilevel negative binomial approach with three levels of analysis localization decisions in a country 49 countries in a region six regions and at the headquarters level in this way we test the regional effects controlling for country and corporate dimensions we also run separate models to differentiate wholly owned and joint venture localization decisions our results strongly support the semi globalization perspective in that the regional level effects are significant and different from the country level effects for all foreign subsidiaries for wholly owned subsidiaries and for jointly owned subsidiaries japanese mnes adopt a regional perspective that complements their decisions at the country and firm levels they seek regional agglomeration benefits and make arbitrage decisions between countries in the same region

linear and nonlinear exchange rate exposure abstract this paper presents a new methodological approach to examine exchange rate exposure which takes account of the role of the market portfolio and macroeconomic variables in exposure regressions exchange rate regimes based on periods of depreciation and appreciation and nonlinear exposure within each regime we show that the stock market s own exposure to exchange rates should be taken into account before considering industry exposure in addition we adjust the exchange rate and the stock market for common economy wide factors that are unrelated to exchange rates within this framework we show that exposure to bilateral exchange rates is statistically and economically important and that industries with extensive international trade are more often exposed than industries with low levels of international trade the signs of exposure coefficients in each regime are consistent with the extent to which an industry exports we also show that nonlinear exposure is often statistically and economically significant interestingly there is little evidence that industries are exposed to a currency basket

the effects of information voids on capital flows in emerging markets information voids reflect a lack of publicly available information about a country s investment climate and represent the information problems associated with institutional voids we argue that foreign investors differ in their sensitivity to information voids based on their own private information and their flexibility in responding rapidly to change we predict that foreign banks will be least hampered by information voids due to their privileged access to private information about local conditions and ability to adapt quickly to new information portfolio investors while impeded by information voids due to their severely limited access to local private information are able to quickly respond to new information foreign direct investors have moderate access to local private information yet their inability to adapt quickly creates problems dealing with information voids using time series cross sectional data on local public information and capital flows to the thirty largest emerging markets from 1994 to 2012 we find preliminary support for our hypotheses regarding the sensitivity of different investors to information voids we find that direct investors are most sensitive to information voids and banks are least sensitive while portfolio investors are moderately sensitive

exchange rates and prices the adjustment of relative prices to exchange rate movements is explained in an industrial organization approach given labor costs in the respective currencies exchange rate movements change costs for firms selling in the home market and thus disturb the industry equilibrium the extent of absolute and relative price adjustment is shown to depend on market integration product substitutability the relative number of domestic and foreign firms and the market structure the impact of exchange rates on prices is illustrated in a variety of approaches including the cournot a dixit and j stiglitz 1977 and s salop 1979 models some empirical evidence is offered in support of the theory copyright 1987 by american economic association

voluntary environmental agreements good or bad news for environmental protection abstract there has been growing interest in the use of voluntary agreements vas as an environmental policy tool this article uses a simple model to determine whether vas are likely to lead to efficient environmental protection we consider cases where polluters are induced to participate either by a background threat of mandatory controls the stick approach or by cost sharing subsidies the carrot approach the results suggest that the overall impact on environmental quality could be positive or negative depending on a number of factors including the allocation of bargaining power the magnitude of the background threat and the social cost of funds

common stochastic trends in a system of exchange rates univariate tests reveal strong evidence for the presence of a unit root in the univariate time series representation for seven daily spot and forward exchange rate series furthermore all seven spot and forward rates appear to be cointegrated that is the forward premiums are stationary and one common unit root or stochastic trend is detectable in the multivariate time series models for the seven spot and forward rates respectively this is consistent with the hypothesis that the seven exchange rates possess one longrun relationship and that the disequilibrium error around that relationship partly accounts for subsequent movements in the exchange rates a general consensus has emerged in recent years that many macroeconomic time series such as gnp consumption expenditures disposable income etc can be characterized by a stochastic trend model in particular nelson and plosser 22 described this property as one of being difference stationary so that the first difference of a time series is stationary an alternative trend stationary model where a stationary component is added to a deterministic trend term has generally been found to be less appropriate 1 similarly it has long been recognized that many financial time series such as foreign exchange rates are nonstationary e g in meese and singleton 21 the issue of nonstationary is not merely a statistical curiosity but has several important implications for the modeling of exchange rates for instance many models of exchange rate determination under rational expectations require stationarity assumptions when solving out the expected future values of the fundamentals further there has been some controversy over the appropriate transformations to use when conducting tests of whether the forward rate is an unbiased and efficient predictor of the future spot exchange rate 2 some authors e g frenkel 11 12 have conducted tests in levels while geweke and feige 14

operating flexibility global manufacturing and the option value of a multinational network the multinational corporation is a network of activities located in different countries the value of this network derives from the opportunity to benefit from uncertainty through the coordination of subsidiaries which are geographically dispersed we model this coordination as the operating flexibility to shift production between two manufacturing plants located in different countries a stochastic dynamic programming model treats explicitly this flexibility as equivalent to owning an option the value of which is dependent upon the real exchange rate the model is extended to analyze hysteresis effects and within country growth options we show that the management of across border coordination has led to changes in the heuristic rules used for performance evaluation and transfer pricing

on the integration of production and financial hedging decisions in global markets we study the integrated operational and financial hedging decisions faced by a global firm who sells to both home and foreign markets production occurs either at a single facility located in one of the markets or at two facilities one in each market the company has to invest in capacity before the selling season starts when the demand in both markets and the currency exchange rate are uncertain the currency exchange rate risk can be hedged by delaying allocation of the capacity to specific markets until both the currency and demand uncertainties are resolved and or by buying financial option contracts on the currency exchange rate when capacity commitment is made a mean variance utility function is used to model the firm s risk aversion in decision making we derive the joint optimal capacity and financial option decision and analyze the impact of the delayed allocation option and the financial options on capacity commitment and the firm s performance we show that the firm s financial hedging strategy ties closely to and can have both quantitative and qualitative impact on the firm s operational strategy the use or lack of use of financial hedges can go beyond affecting the magnitude of capacity levels by altering global supply chain structural choices such as the desired location and number of production facilities to be employed to meet global demand

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

multifirm unions and the incentive to adopt pattern bargaining in oligopoly abstract this paper develops a model of wage bargaining between an industry wide trade union and firms in an oligopoly and considers the circumstances under which the union prefers pattern bargaining that is negotiating contracts in a sequential manner to simultaneous bargaining with the firms the paper goes on to consider the importance of the bargaining order in pattern bargaining when the firms are asymmetric the analysis shows that the union gains by first targeting a firm which is in a relatively weak bargaining position i e impatient to settle or a firm with relatively large profits

unionised labour market and strategic production decision of a multinational i show that a foreign firm may sell the same product through both foreign direct investment fdi and export and this decision depends on the size of the product market it happens irrespective of whether the labour market in the domestic country or in the foreign country is unionised unlike the existing works focusing on risk diversification in presence of demand or cost uncertainty i explain the co existence of fdi and export in a world with certainty the endogenous determination of the wage rate plays an important role for my results my analysis shows the effects of the fixed cost of fdi and competition in the product market on the production strategy of the foreign firm

persistent trade effects of large exchange rate shocks this paper presents a theoretical basis for the argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trade flows and the equilibrium exchange rate itself we begin with a partial equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself here we see that a large capital inflow which leads to an initial appreciation can result in a persistent reduction in the exchange rate consistent with trade balance

an economic model for evaluating mining and manufacturing ventures with output yield uncertainty this paper develops an operational risk management model for evaluating production efforts in manufacturing and mining industries where the resource to be exploited is nonhomogenous using acontingent claims methodology now commonly encountered in financial applications we formulate a production control model in an environment characterized bymarket andprocess uncertainty in our analysis market risk is depicted by the output price while process uncertainty is captured by the random variability inherent in the output s yield in this light adjustments to the rate of production are viewed as a sequence of nested real options affording operating flexibility we account for an optimal sequence of production adjustments over a preestablished production horizon by taking the production rate as an adapted positive real valued process accordingly techniques of stochastic control theory and contingent claims analysis cca are employed to ensure value maximizing production policies are rendered in a manner consistent with an equilibrium price structure

rent shifting and the order of negotiations abstract when two sellers negotiate terms of trade with a common buyer the order in which the negotiations occur can affect the buyer s payoff this suggests that the buyer may have preferences over which seller to negotiate with first we find that when the efficient outcome calls for the buyer to purchase from only one seller the buyer weakly prefers to negotiate first with the inefficient seller and when the efficient outcome calls for the buyer to purchase from both sellers the buyer prefers to negotiate first with the seller that has less bargaining power or offers a smaller stand alone surplus all else being equal these conclusions hold whether or not penalty clauses are feasible

environmental agreements at european community level reflections based on member state experience the experience from five national environmental agreement schemes all about energy efficiency in manufacturing industries is discussed in relation to the potential for similar action at the european community level agreements at the community level could have significant advantages but success at the national level depends on parameters that would be difficult to reproduce or substitute at the community level e g extensive administrative capacity substantial political threats large economic benefits and or the capacity to grant tax relief to overcome such problems and gain some of the advantages of community action one option would be to focus community action on the best bets namely a few energy intensive industries with good capacity for collective action another option would be the combination of community action with national action c 2001 elsevier science ltd all rights reserved less

timing and eco nomic efficiency of climate friendly investments in supply chains abstract emission trading schemes such as the european union emissions trading system euets attempt to reconcile economic efficiency with ecological efficiency by creating financial incentives for companies to invest in climate friendly innovations using real options methodology we demonstrate that under uncertainty economic and ecological efficiency continue to be mutually exclusive this problem is even worse if a climate friendly project depends on investing in of a whole supply chain we model a sequential bargaining game in a supply chain where the parties negotiate over implementation of a carbon dioxide co2 saving investment project we show that the outcome of their bargaining is not economically efficient and even less ecologically efficient furthermore we show that a supply chain becomes less economically efficient and less ecologically efficient with every additional chain link finally we make recommendations for how managers or politicians can improve the situation and thereby increase economic as well as ecological efficiency and thus also the eco efficiency of supply chains

union bargaining power subcontracting and innovation we show that if a firm can subcontract production to an informal sector an increase in union power may either increase or decrease innovation an increase in union power makes the firm worse off irrespective of its effect on innovation however in contrast to the usual belief an increase in union power may increase consumer surplus and decrease union utility by affecting innovation thus suggesting that a union may not want to be too powerful an increase in union power may create an ambiguous effect on social welfare our analysis provides new insights to the relation between union power and innovation

on measuring the value of a nonmarket good using market data we use line integral theory to lay out in a more general theoretical framework the conditions under which it is possible to measure with market data the welfare effects of a change in a nonmarket good we present in detail a numerical method of measuring the value of nonmarket goods using market data under either weak neutrality or weak complementarity our numerical method is more flexible than the existing analytical method because it can be used with any well behaved marshallian demand function and can be used even when the willig condition does not hold

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

global facility network design in the presence of competition abstract we study the facility network design problem for a global firm that is a monopolist seller in its domestic market but faces local competition in its foreign market the global firm produces in the face of demand and exchange rate uncertainty but can postpone localization and distribution of the output until after uncertainties are resolved the competitor in the foreign market however enjoys the flexibility of postponing all production activities until after uncertainties are resolved the two firms engage in an ex post cournot competition in the foreign market we consider three potential network configurations for the global firm under a linear demand function we provide the necessary and sufficient condition that one of the three networks is the global firm s optimal choice and explore how the presence of foreign competition affects the sensitivity of the global firm s design to various cost parameters and market uncertainties

strategic commitment versus postponement in a two tier supply chain abstract in this paper the trade off between strategic commitment and operational flexibility is examined as it arises in a supply chain when a supplier offers competing buyers opportunities to make early purchase commitments for a product with a short life cycle traditionally the use of incentives for early purchase commitments for short life cycle products has been justified on the basis of a supplier s production lead times or capacity constraints an alternative explanation has been proposed by offering early purchasing opportunities a supplier can influence the form of competition in the downstream market using a single period model it has been shown that below a threshold level of demand uncertainty the supplier can benefit from providing adequate pricing incentives to entice downstream buyers to commit to purchase quantities before demand information is revealed moreover such early purchasing opportunities can benefit the supplier as well as the buyers even in the absence of production lead times or capacity constraints

bringing economic opportunity into line with environmental influence a discussion on the coase theorem and the porter and van der linde hypothesis environmental concerns and tightened environmental policy parameters have been associated with the notion of additional costs of compliance rather than with innovation and sustainability the contrary has also been suggested claiming that strict environmental legislation merely serves as a catalyst for firms to retain obvious economic and environmental mutual gains so called win wins laying around waiting to be collected such implications can be seen from the porter and van der linde writings heavily criticised by palmer et al as being built on faulty examples this paper supports that conclusion and uses property rights and transactions costs theories to find private incentives to explore the win wins for those actors who have the largest potentials to diminish the pressure on our environment by applying the coase theorem emphasising transaction costs and property rights this paper argues that strong public support is needed to create private incentives for exploring economic and environmental win win innovations the public support suggested is to a extend producer responsibilities where the same costs which may be neglected by the end consumers will if transferred to the design owner be viewed as a production cost and to b enforce environmental public procurement both may be combined with a support to c actors such as non governmental organisations and consumer agencies positioning themselves as information bridges by informing the consumers the negative effects of asymmetric information among actors can thereby be diminished as well as the low interest to primarily care for the environment among common consumers

valuing environmental quality weak complementarity with sets of goods in practice it is frequently impossible to identify a single good which is a weak complement to an environmental amenity for which welfare measures are desired however a set of goods exhibiting this property sometimes exists e g water related recreational activities when the nonmarket good to be valued is water quality a set of weak complements is defined and implications for welfare measurement presented the proper welfare measure now involves evaluation of a line integral and simple additions of areas under demand curves will not always be correct however under certain econometric circumstances approximate welfare measures can be obtained from estimated functions

linear demand functions in theory and practice abstract integrability conditions for an incomplete system of linear demand functions are considered the parameter restrictions consistent with integrability are identified and the structure of the conditional preference map is obtained it is found that the conditional preferences for a set of linear demand functions are either quadratic or leontief from a translated origin welfare analysis with linear demand models is also considered