the use of parametric and non parametric frontier methods to measure the productive efficiency in the industrial sector a comparative study abstract parametric frontier models and non parametric methods have monopolised the recent literature on productive efficiency measurement empirical applications have usually dealt with either one or the other group of techniques this paper applies a range of both types of approaches to an industrial organisation setup the joint use can improve the accuracy of both although some methodological difficulties can arise the robustness of different methods in ranking productive units allows us to make a comparative analysis of them empirical results concern productive and market demand structure returns to scale and productive inefficiency sources the techniques are illustrated using data from the us electric power industry

the adjustment cost model of the firm duality and productive efficiency we present the theoretical foundation for an adjustment cost technology that supports the intertemporal production decision making behavior using the directional distance function dynamic input efficiency measures are developed that can separate out the impact of variable and dynamic factors inefficiency levels an approach to implement this theory in a nonparametric fashion is developed and applied to an unbalanced panel of dutch glasshouse firms the application finds overuse of all variable inputs and overcapitalization of installations the overall dynamic efficiency gain of 16 remains possible with allocative inefficiencies indicating underinvestment in structures and installations a comparison of static and dynamic efficiency measures finds that the static overall cost inefficiency is overestimated with technical inefficiency being overstated and allocative inefficiency being understated

the role of information on retirement planning evidence from a field study i introduction modern financial planning is dominated by discussions of one topic retirement savings retirement planning behaviors are widely studied yet population data show perplexing patterns of savings especially among households who reasonably should expect to live long and healthy lives after separating from the workforce savings choices are increasingly focused on the decisions of individuals rather than on public plans or employer mandated pensions poterba 2014 however policymakers attempts to stimulate more individual level savings have not shown strong effects duflo et al 2007 one problem appears to be related to people failing to fully plan ahead for retirement and neglecting longer run financial management in general ameriks caplin and leahy 2003 according to the employee benefit research institute 2015 more than one in four workers have less than 1 000 in retirement savings fewer employees today have access to defined benefit pensions than they did in the past and instead rely on employer based 401 k savings accounts and nonemployer based individual retirement accounts iras munnell 2006 however participation rates remain low 43 of private sector workers of age 25 64 take part in retirement savings programs calabrese 2011 even among active savers there are concerns about how well people are able to manage their retirement accounts in ways that reflect optimal planning horizons several policies have been designed to increase participation in retirement plans first firm level programs requiring employees to opt out vs opt in to a 401 k plan have increased participation in retirement savings plans madrian and shea 2001 however as choi laibson and madrian 2011 highlight because individuals have heterogeneous savings preferences these default options may be costly to individuals as some might save more in the absence of the default and others might prefer to save less second government designed tax breaks for individuals investing in retirement accounts and increases in maximum income deferral limits for these accounts could increase retirement savings however income tax deductions and credits can be costly tax expenditures and individuals especially lower and middle income savers may not respond to these incentives engen gale and scholz 1996 third firms can try to help people better understand their savings options and make plans for retirement effectively lowering the costs of information with workshops and or counseling retirement planning requires information in order to form expectations about lifetime income years of work expected investment returns adjusted for risk and consumption levels in retirement people who lack information about these issues may fail to make a plan or proceed to design a plan based on incomplete information educational programs targeted to workers hold promise to help people recalibrate their expectations and shift their savings behavior well targeted financial education might facilitate people to pursue their individual retirement saving preferences in ways that default rules or incentives alone cannot this article studies the effect of financial education on retirement savings offered to employees in an online format online information offers several advantages over traditional seminars for example online courses can be delivered to a large audience and at a lower cost per participant than classroom delivery it also poses relatively low marginal costs to the employee because of the flexibility and convenience of the mode of delivery it may serve employees who would not attend in person sessions while participants in online education do not benefit from group interactions online delivery provides participants privacy to explore financial issues that they might shy away from in more public settings several studies document that employer based education is associated with improvements in employees financial knowledge clark and d ambrosio 2002 holland goodman and stich 2008 skimmyhorn forthcoming

linking savings behavior confidence and individual feedback a field experiment in ethiopia abstract in this paper we investigate behavioral constraints to savings among smallholder farmers in rural ethiopia increasing savings by overcoming such behavioral constraints has been documented to have positive effects on various outcomes such as health education and agricultural investments we causally identify a strong increase in savings to a soft commitment device in the form of a moneybox with a regular savings plan in our randomized field experiment we also provide personalized feedback consisting of recommendations to self set saving goals these recommendations trigger increases in savings of up to 36 percent in a detailed analysis of the behavioral characteristics driving these results we find a strong and robust link between financial confidence and savings behavior in particular the savings of underconfident individuals are less than 2 3 of the savings of overconfident individuals an association stronger than other behavioral traits such as risk lovingness and present biasedness remarkably the effect of our personalized feedback is particularly strong for underconfident individuals we discuss possible underlying mechanisms rule out a set of alternative behavioral explanations and address crowding out behavior into other forms of saving 1

cournot and bertrand equilibria compared substitutability complementarity and concavity abstract this paper assesses the view that bertrand equilibrium is intrinsically more competitive than cournot equilibrium we consider an oligopoly model with linear demand and a mixture of substitute and complementary products our results provide support for the conventional wisdom and also indicate its limitations we provide counter examples showing that no clear cut comparison of prices and quantities is possible without strategic complementarity in either of the two games however price competition is indeed more competitive according to the following criteria lower mark up output ratios larger average output and lower average price

price of anarchy in a linear state stochastic dynamic game abstract we consider a linear state dynamic game played over an event tree and determine analytically the price of anarchy poa which is given by the ratio of player s outcome in the cooperative game to her outcome in the noncooperative game next we illustrate our findings in the context of a pollution control problem we conduct a sensitivity analysis to assess the impact on poa and its lower and upper bounds of varying the different parameter values

electricity demand by time of use an application of the household aids model in this study we estimated the price and expenditure elasticities of peak and off peak electricity consumption using a micro data set on 220 households living in 19 swiss cities the household version of the almost ideal demand system model aids was used as a framework to incorporate household characteristics the aids model was expanded by specifying the intercept as a linear function of household characteristics variables results indicate that demand for peak and off peak electricity is elastic and that cross price effects are positive as well as the elasticity of substitution therefore peak and off peak electricity are substitutes in the hicks allen sense

how financial literacy affects household wealth accumulation this study isolates the causal effects of financial literacy and schooling on wealth accumulation using a new household dataset and an instrumental variables iv approach financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models whereas the iv estimates reveal even more potent effects of financial literacy they also indicate that the schooling effect only becomes positive when interacted with financial literacy estimated impacts are substantial enough to imply that investments in financial literacy could have large wealth payoffs

facilitating practices the effects of advance notice and best price policies even if firms in a market choose discount prices noncooperatively the use of most favored customer and meet or release contracts enables those firms to adopt quantity choice strategies consequently there can be a range of list prices that are impervious to unilateral nonselective discounts but this range does not include prices above the level determined in a cournot equilibrium the practice of advance public notification of list price increases can facilitate the establishment of such supracompetitive list prices as was argued in the recent ftc ethyl case the possibility of offering discounts selectively results in a much more competitive situation

nonparametric efficiency analysis under uncertainty using data envelopment analysis abstract production and cost frontiers of a firm in an industry are directly affected by the uncertainty of market demand and the uncertainty of input availability the nonparametric approach of data envelopment analysis dea is generalized here in both static and dynamic directions by incorporating these uncertainties the paper addresses an extension of the convex hull method of dea for determining a production frontier in the presence of demand and supply uncertainty of outputs and inputs respectively this is illustrated by an empirical application to the computer industry

generalized quantity competition for multiple products and loss of efficiency we study a generalized model of quantity cournot oligopolistic competition the impact of competition on social surplus and firms profit is analyzed firms produce multiple differentiated products and face production constraints we compare the social surplus produced by competing firms and by colluding firms with the maximum achievable total surplus in the market similarly we quantify the loss of profit that firms incur by competing instead of colluding our goal is to understand how the presence of competition affects the firms and society as a whole but also to determine what are the key drivers of the inefficiencies that arise due to competition

the price of anarchy in supply chains quantifying the efficiency of price only contracts in this paper we quantify the efficiency of decentralized supply chains that use price only contracts with a price only contract a buyer and a seller agree only on a constant transaction price without specifying the amount that will be transferred it is well known that these contracts do not provide incentives to the parties to coordinate their inventory capacity decisions we measure efficiency with the price of anarchy poa defined as the largest ratio of profits between the integrated supply chain that is fully coordinated and the decentralized supply chain we characterize the efficiency of various supply chain configurations push or pull inventory positioning two or more stages serial or assembly systems single or multiple competing suppliers and single or multiple competing retailers

financial knowledge and financial literacy at the household level there is evidence of a relation between numeracy and wealth held outside of pensions and social security with pensions and social security accounting for half of wealth at retirement and evidence that those with pensions save more in other forms one would expect to find knowledge of pensions and social security influencing retirement saving yet we find no evidence that knowledge of pensions and social security is related to nonpension non social security wealth to numeracy or that it plays an intermediate role in the numeracy wealth relation our findings raise questions about policies that would enhance numeracy to increase retirement saving

measuring dynamic efficiency under risk aversion abstract problems of measuring the efficiency of decision making units are discussed here in an intertemporal framework where both current and capital inputs are used to produce outputs it is assumed that the units are risk averse and they attempt to adjust their short run input decisions so as to attain the intertemporally optimal expansion paths by using an adjustment cost approach the influence of risk aversion and output fluctuations on the dynamic production frontier are analyzed by a set of optimal control models

dynamic data envelopment analysis a relational analysis abstract this paper proposes a dynamic data envelopment analysis dea model to measure the system and period efficiencies at the same time for multi period systems where quasi fixed inputs or intermediate products are the source of inter temporal dependence between consecutive periods a mathematical relationship is derived in which the complement of the system efficiency is a linear combination of those of the period efficiencies the proposed model is also more discriminative than the existing ones in identifying the systems with better performance taiwanese forests where the forest stock plays the role of quasi fixed input are used to illustrate this approach the results show that the method for calculating the system efficiency in the literature produces over estimated scores when the dynamic nature is ignored this makes it necessary to conduct a dynamic analysis whenever data is available

a note on price and quantity competition in differentiated oligopolies abstract in this note we show that the results developed in n singh and x vives 1984 rand j econ 15 546 554 are sensitive to the duopoly assumption if there are more than two firms prices may be higher under price competition than under quantity competition this will be the case if quality differences are large and goods are complements if goods are substitutes high quality firms may earn higher profits under price competition than under quantity competition hence it is not evident which kind of competition is more efficient journal of economic literature classification numbers d43 l13

impact of some parameters on investments in oligopolistic electricity markets abstract it is seldom the case that one has the opportunity to compare investments as projected by a long term multi period model to what is eventually realized in practice further although sensitivity analysis is of common use in any optimization setting the impact of some parameters on strategic investments is not yet fully assessed in the context of the deregulated electricity industry starting with a benchmark model of the finnish industry we precisely explore the impact on equilibrium investments of varying such parameters as direct and cross price elasticities length of the planning horizon and the depreciation rate of capacity we run the model with different parameter values and compare the predicted equilibrium with what companies have actually done the model is a stochastic dynamic game involving three players and played over a ten year period our results show the depreciation rate and the planning horizon have a notable effect on investment levels whereas price elasticities seem to play a lesser role although the model s results are rather well aligned to total industry investments it diverges from individual levels this may be due to the cost parameter used and or to the open loop information structure adopted in the computations in any event these results should be of methodological and practical interest to scholars and practitioners involved in strategic investment in the electricity industry

a partial adjustment approach to evaluating and measuring the business value of information technology abstract in this paper we develop a partial adjustment approach based on the theory of partial adjustment to assess the value of information technology we also propose a performance measure derived from the approach the constrained structural or implicit and unconstrained non structural or explicit models derived from the approach are fitted into a set of panel data at the country level covering the period from 1993 to 2006 for a sample of 12 countries including the g7 nations and are estimated by the seemingly unrelated regression estimation the results produced by the models are robust with respect to the choice of the production function representing the true desired or maximum output and challenge the widely held belief that the productivity paradox has disappeared and the view that the productivity paradox exists in developing economies only the proposed approach compares favorably with the time varying stochastic production frontier approach since it is easier and simpler to apply but unlike the non parametric data envelopment analysis approach it is parametric

planning and financial literacy how do women fare many older us households have done little or no planning for retirement and there is a substantial population that seems to undersave for retirement of particular concern is the relative position of older women who are more vulnerable to old age poverty due to their longer longevity this paper uses data from a special module we devised on planning and financial literacy in the 2004 health and retirement study it shows that women display much lower levels of financial literacy than the older population as a whole in addition women who are less financially literate are also less likely to plan for retirement and be successful planners these findings have important implications for policy and for programs aimed at fostering financial security at older ages

competition in the supply option market this paper develops a multiattribute competition model for procurement of short life cycle products in such an environment the buyer installs dedicated production capacity at the suppliers before demand is realized final production orders are decided after demand materializes of course the buyer is reluctant to bear all the capacity and inventory risk and thus signs flexible contracts with several suppliers we model the suppliers offers as option contracts where each supplier charges a reservation price per unit of capacity and an execution price per unit of delivered supply these two parameters illustrate the trade off between total price and flexibility of a contract which are both important to the buyer we model the interaction between suppliers and the buyer as a game in which the suppliers are the leaders and the buyer is the follower specifically suppliers compete to provide supply capacity to the buyer and the buyer optimizes its expected profit by selecting one or more suppliers we characterize the suppliers equilibria in pure strategies for a class of customer demand distributions in particular we show that this type of interaction gives rise to cluster competition that is in equilibrium suppliers tend to be clustered in small groups of two or three suppliers each such that within the same group all suppliers use similar technologies and offer the same type of contract finally we show that in equilibrium supply chain inefficiencies i e the loss of profit due to competition are at most 25 of the profit of a centralized supply chain

a new pricing scheme for a multi period pool based electricity auction a new pricing scheme is proposed for determining the social welfare distribution in a centralized pool based auction in the context of solving the unit commitment problems under competition a significant contribution of this paper over previous publications on this subject is the inclusion of the price responsive demand side for the multi period auctions with dynamic commitment characteristics the model allows every thermal unit and every consumer to obtain individual maximum profits and at the same time it gives the market coordinator an adequate tool for solving the ensuing technologically constrained unit commitment problem with fair market clearing the pricing model is in the form of a mixed linear programming model that minimizes the sum of the compensation costs the accompanying case study illustrates the approach proposed

experimentation and learning in a differentiated products duopoly abstract this paper explores price setting behavior in the context of a duopoly in which firms are uncertain about the degree of product differentiation firms learn from the difference in their realized demands in light of the price differential the informativeness of this market experiment is shown to be increasing in size of the price differential in markets with highly substitutable products price dispersion is enhanced as firms adjust their prices so as to generate more information in markets with highly differentiated products firms compress their prices as they prefer to reveal less about the extent of product differentiation journal of economic literature classification numbers d43 d83 l13

technical note a comparison of bertrand and cournot profits in oligopolies with differentiated products we compare equilibrium profits of bertrand price and cournot quantity competition in oligopolies with an arbitrary number of nonsymmetric firms offering differentiated substitutable products under an affine demand function we provide a precise characterization of the profit relationship in terms of 1 the number of firms 2 their relative quality and cost differences and 3 the competition intensity defined as the maxiumum absolute value of total change in competitors demand over change in own demand due to a unit change in own price we first examine the case where firms have the same demand sensitivity to own price and the same demand sensitivity to competitor prices but different cost and quality parameters for this case we prove that the total profit of the industry under cournot competition is at least as high as the total profit under bertrand competition if the number of firms is less than 28 or if the competition intensity is less than 0 909 or if the differences in quality and cost competitiveness between firms are small we also prove that for each firm the profit achieved under cournot competition is at least as high as the profit achieved under bertrand competition if the number of firms is less than eight or if the competition intensity is less than 0 739 we then provide numerical and analytical results that qualitatively support the same conclusions for general affine demand functions with variable demand sensitivities to prices

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

the real time price elasticity of electricity the real time price elasticity of electricity contains important information on the demand response of consumers to the volatility of peak prices despite the importance empirical estimates of the real time elasticity are hardly available this paper provides a quantification of the real time relationship between total peak demand and spot market prices we find a low value for the real time price elasticity which may partly be explained from the fact that not all users observe the spot market price if we correct for this phenomenon we find the elasticity to be fairly low for consumers currently active in the spot market if this conclusion applies to all users this would imply a limited scope for government intervention in supply security issues

risk preferences and expected utility evidence from labor supply data i introduction why do some people enjoy bungee jumping while others do not why do some individuals hold extensive insurance portfolios it is intuitive to attribute these differences between people to their individual preferences for risk a concept that is appealing but hard to quantify arrow 1965 and pratt s 1964 coefficient of relative risk aversion rra has been the standard risk measure since the mid 1960s it relies on expected utility theory eut and the fact that the utility function is concave over wealth although eut is still widely used in economics theorists are increasingly unsatisfied with its performance this is true when applied specifically to risk aversion as well for example rabin 2000 provides a calibration argument that shows that if an expected utility maximizer is not essentially risk neutral over a modest stakes gamble he will be unrealistically risk averse over a large risk gamble he concludes that aversion to modest stakes risk has nothing to do with the diminishing marginal utility of wealth 1282 a frequent argument for continuing to use eut despite failures of its axioms is that it adequately explains behavior an empirical measure of risk aversion that explains behavior is very desirable as risk preference plays an important role in many decisions of interest to economists using a labor supply regression and information on each individual s income and hours of work i compute a measure of risk aversion gamma sub ls that is the curvature of utility over wealth and compare this measure of risk aversion to one based on the individual s willingness to accept gambles over lifetime income go both should measure an individual s preferences for large scale risk while it has been well established that an individual s risk preferences with respect to both large and small scale risk cannot be adequately explained by eut comparing gamma sub g and gamma sub ls affords an opportunity to see how eut performs over gambles of the same scale if eut is a good predictive model for behavior under uncertainty individuals who have a very concave utility function as measured by gamma sub ls should be less willing to gamble with lifetime income than those with smaller values of gamma sub ls i find no correlation between the two measures implying that eut does not explain the variation in risk preferences as measured by a hypothetical gambling frame many economists have questioned whether hypothetical choices are a good proxy for actual decisions in the context of risk and perhaps the discrepancy in the two measures stems from this from a preliminary look at how these measures vary with actual risky choices it appears that the measure of the curvature of utility over wealth does a better job of explaining actual risky choices such as smoking and binge drinking and the hypothetical gambling frame does a better job explaining people s responses to other hypothetical risky situations this is of interest for theorists who are trying to find the new direction for choices under uncertainty but also for empiricists who wish to use risk preferences to explain decision making and behavior ii measuring risk aversion with labor supply data aside from concerns as to the validity of eut risk aversion can be difficult to measure as it requires specific information on an individual s utility function chetty 2006 uses the fact that rra is directly related to the ratio of the income and compensated wage elasticities of labor supply and presents a formula that allows for the estimation of the coefficient of rra using labor supply data recall that rra is proportional to u sub cc u sub c where u sub c is the first partial derivative of the utility function with respect to consumption and u sub cc is the second derivative an agent s compensated wage elasticity is directly related to u sub c the larger the marginal utility of consumption the more benefit the agent gets from an additional dollar of income so the more willing he is to work when his wage increases

the role of financial literacy in determining retirement plans nber working paper seriesthe role of financial literacy in determining retirement plansrobert clarkmelinda sandler morrillsteven g allenworking paper 16612http www nber org papers w16612national bureau of economic research1050 massachusetts avenuecambridge ma 02138december 2010this research is funded in part by a grant from finra investor education foundation we wouldlike to thank jennifer maki mehtab randhawa and evan rogers for their research assistance theresearch could not have been accomplished without the cooperation of the companies that partneredwith us we would also like to thank nicholas horsewood annamaria lusardi olivia mitchell andtwo anonymous referees for useful comments all remaining errors are our own the views expressedherein are those of the authors and do not necessarily reflect the views of the national bureau of economicresearch finra investor education foundation or any of its affiliated companies 2010 by robert clark melinda sandler morrill and steven g allen all rights reserved shortsections of text not to exceed two paragraphs may be quoted without explicit permission providedthat full credit including notice is given to the source

equilibrium prices in the bertrand and cournot oligopolies abstract the equilibrium prices for the bertrand and cournot oligopolies with product differentiation are compared if all firms have linear demand and cost functions and if in addition the jacobian matrix of the demand functions has a dominant negative diagonal the cournot equilibrium prices are not lower than the bertrand ones the general condition for the comparison of the bertrand and cournot equilibrium prices can be derived even if the nonlinearity is involved in the cost and or demand functions

baby boomer retirement security the roles of planning financial literacy and housing wealth abstract we compare wealth holdings across two cohorts of the health and retirement study the early baby boomers in 2004 and individuals in the same age group in 1992 levels and patterns of total net worth have changed relatively little over time though boomers rely more on housing equity than their predecessors most important planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non planners instrumental variables estimates show that planning behavior can explain the differences in savings and why some people arrive close to retirement with very little or no wealth

measurement of multiperiod aggregative efficiency abstract this article proposes a new method for measuring an aggregative efficiency of multiple period production systems every organization or firm generates a time series of data that represent its performances in the resource utilization and output production over multiple periods and often desires an aggregated measure of efficiency for several periods of interest data envelopment analysis dea has become an accepted and well known approach to evaluating efficiency performance in a wide range of cases however most of the dea studies have dealt primarily with ways to gauge the efficiency of production in only a single period so this efficiency reflects the insufficient or partial performance of multiple period productions the new method is developed through extensions of the concept of debreu farrell technical efficiency and is applied to evaluating the efficiency of cable tv service units with 3 year data

manufacturer s return policies and retail competition manufacturers returns policies are a common feature in the distribution of many products the obvious rationale for returns policies is insurance practitioners not surprisingly have a different perspective and view returns as a cost of doing business in this paper we study the strategic effect of returns policies on retail competition and highlight its profitability implications for a manufacturer the setting for our research is the distribution of products with uncertain demand limited shelf lives and retail competition our objective is to provide a better understanding of when manufacturers should adopt returns policies the insights are obtained with a model based on the economics of strategy and decision making under uncertainty we show that when retailing is competitive and there is no uncertainty in demand a returns policy subtly induces retailers to compete more intensely the provision of a returns policy reduces retail prices without affecting wholesale prices thereby reducing retailer margins and improving manufacturer profitability the intuition is that with a returns policy cournot like levels of retail stocks cannot be sustained each retailer will order stocks so that it will not be constrained by stocks and so intensifying retail competition when however demand is uncertain and there is a single retailer a returns policy encourages the retailer to over stock and so decreases upstream manufacturer profits while the provision of a returns policy leads to lower retail margins the optimality of returns policy depends on the overall uncertainty and marginal cost a returns policy reduces the dispersion in retail prices between the high and low states of demand and the range of retail prices in the returns case is contained within the range of retail prices for the no returns case in the general setting when there are competing retailers and demand is uncertain there is a trade off for the manufacturer between the benefits more intense retail competition and the costs excessive stocking of a returns policy we find that a manufacturer should accept returns when the marginal production cost is sufficiently low and demand uncertainty is not too great to validate the results of our theory we conduct an empirical test with data from a major u s retailer the tests confirm our prediction that a returns policy intensifies retail competition and reduces retailer margins our theory and empirical test should interest practitioners and researchers in distribution especially those concerned with managing retail competition

investigating dynamic multifirm market interactions in price and advertising diagnosing the nature and magnitu de of competitive interactions among firms is important for developing effective marketing strategies in this paper we formulate a game theoretic model of firm interaction to analyze the dynamic price and advertising competition among firms in a given p roduct market firm or brand level demand functions account for the contemporaneous and carry over effects of these marketing activities and also allow for the effects of competitor actions firms take into consideration the actions of their rivals as well as their own demand and cost functions both production and advertising when determining the profit maximizing price and advertising levels our formulation enables us to quantify not only the direction and magnitude of competitive reactions but also to identify the underlying form of market conduct that generates the particular pattern of interaction we specify and estimate a fully structural econometric model for three firms constituting a distinct sub market within a personal care product category we estimate the demand and competitive interaction parameters as well as the production and advertising cost functions for each firm we then derive implications for competitive interactions and market structure interestingly we find that while firms seem to compete on advertising they price cooperatively thereby enhancing their price cost margins

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

who chooses annuities an experimental investigation of the role of gender framing and defaults research suggests that women are more risk averse and less financially literate than men as evidenced by their choice of less risky asset investments we contribute to the literature by focusing on the role of gender in an increasingly important financial decision facing individuals at retirement the choice between purchasing an annuity in this case a fixed immediate lifetime annuity or investing their savings on their own by using a controlled experiment we eliminate the role of adverse selection and unfair annu ity pricing and are able to focus specifically on gender we also explore the role of defaults and framing and whether women react differently to these features we find that women are more likely to choose the annuity and this is only partly explained by differences in risk aversion and financial literacy furthermore biases in a five minute presentation of information signifi cantly affect choices in ways that differ across men and women

technology selection and capacity investment under uncertainty abstract we analyze the problem of technology selection and capacity investment for electricity generation in a competitive environment under uncertainty adopting a nash cournot competition model we consider the marginal cost as the uncertain parameter although the results can be easily generalized to other sources of uncertainty such as a load curve in the model firms make three different decisions i the portfolio of technologies ii each technology s capacity and iii the technology s production level for every scenario the decisions related to the portfolio and capacity are ex ante and the production level is ex post to the realization of uncertainty we discuss open and closed loop models with the aim to understand the relationship between different technologies cost structures and the portfolio of generation technologies adopted by firms in equilibrium for a competitive setting to the best of our knowledge this paper is the first not only to explicitly discuss the relation between costs and generation portfolio but also to allow firms to choose a portfolio of technologies we show that portfolio diversification arises even with risk neutral firms and technologies with different cost expectations we also investigate conditions on the probability and cost under which different equilibria of the game arise

on the strategic importance of prices versus quantities in this article i investigate three single shot models of differentiated products oligopoly in each model firms choose both output and price the demand cost and spillover demand specifications are quite general and there are three main results first with simultaneous choice there is no pure strategy noncooperative equilibrium second with output chosen first and announced to all firms before the choice of price equilibrium sometimes exists and when it does it is the same as in a quantity only model third with price chosen and announced first equilibrium always exists and is the same as in a price only model

on the efficiency of bertrand and cournot equilibria with product differentation in a differentiated products setting with n varieties it is shown under certain regularity conditions that if the demand structure is symmetric and bertrand and cournot equilibria are unique then prices and profits are larger and quantities smaller in cournot than in bertrand competition and as n grows both equilibria converge to the efficient outcome at a rate of at least 1n if bertrand reaction functions slope upwards and are continuous then even with an asymmetric demand structure given any cournot equilibrium price vector one can find a bertrand equilibrium with lower prices in particular if the bertrand equilibrium is unique then it has lower prices than any cournot equilibrium

discounting financial literacy time preferences and participation in financial education programs many policymakers and economists argue that financial literacy is key to financial well being but why do many individuals remain financially illiterate despite the benefits of being financially informed this paper presents results from a field study linking individual decisions to acquire financial information to a normally unobservable characteristic time preferences we elicited time preferences using incentivized choice experiments for all individuals to whom a financial education program was offered our results show that individuals who choose to acquire personal financial information have substantially higher discount factors than individuals who do not the results can be interpreted as non participants discount the benefits of being financially literate more

strategic technology choice and capacity investment under demand uncertainty this paper studies the impact of competition on a firm s choice of technology product flexible or product dedicated and capacity investment decisions specifically we model two firms competing with each other in two markets characterized by price dependent and uncertain demand the firms make three decisions in the following sequence choice of technology technology game capacity investment capacity game and production quantities production game the technology and capacity games occur while the demand curve is still uncertain and the production game is postponed until after the demand curve is revealed we develop best response functions for each firm in the technology game and compare how a monopolist and a duopolist respond to a given flexibility premium we show that the firms may respond to competition by adopting a technology which is the same as or different from what the competitor adopts we conclude that contrary to popular belief flexibility is not always the best response to competition flexible and dedicated technologies may coexist in equilibrium we demonstrate that as the difference between the two market sizes increases a duopolist is willing to pay less for flexible technology whereas the decision of a monopolist is not affected further we find that a firm that invests in flexibility benefits from a low correlation between demands for two products but the extent of this benefit differs depending on the competitor s technology choice our results indicate that higher demand substitution may or may not promote the adoption of flexibility under competition whereas it always facilitates the adoption of flexibility without competition finally we show that contrary to intuition as the competitor s cost of capacity increases the premium a flexible firm is willing to pay for flexibility decreases

credit counseling and consumer credit trajectories nonprofit credit counseling provides consumers with financial education individualized financial counseling and debt restructuring despite potential benefits relatively little is known about its efficacy this study uses administrative data to assess the relationship between counseling and consumer credit outcomes we estimate difference in difference models to analyze credit outcomes for a counseled group relative to a matched comparison group for six quarters after a baseline period we find evidence of a substantial credit shock around the time of counseling post treatment counseling is associated with a persistent reduction in debt even after accounting for bankruptcies foreclosures debt charge offs or participation in debt consolidation programs jel d12

a game theoretic model for generation expansion planning problem formulation and numerical comparisons this paper presents an application of noncooperative game theory to generation expansion planning gep in a competitive electricity industry the authors apply the cournot model of oligopoly behavior to formulate a gep model that may characterize expansion planning in a competitive regime particularly in pool dominated generation supply industries numerical experiments are conducted on a test system to analyze generation investment and market participation decisions of candidate expansion units that vary in costs and forced outage rates the numerical results point to 1 greater industry expansion and system reliability under cournot competition than under centralized expansion planning and 2 higher probabilistic measures of reliability from multi player expansion than from expansion by a traditional monopolist with an equivalent reserve margin requirement furthermore the authors summarize analytical results involving a simplified version of the gep game

temporal technical and profit efficiency measurement definitions duality and aggregation results abstract the shortage function an important tool in production theory measures potential increases in outputs and decreases in inputs for a given direction g at a given date to develop a temporal version of technical efficiency measurement we introduce the concept of a temporal shortage function this temporal efficiency measure is easily computed using linear programming we also establish a duality result stating that the temporal profit function and the temporal shortage function are dual to one another this result has two consequences first one can derive a shadow price path via the shadow prices of the temporal shortage function second transposing the classic farrell inefficiency decomposition temporal profit efficiency is decomposed into temporal technical and temporal allocative efficiency components finally in line with the recent literature on aggregation over firms this contribution treats the possibilities and limits of the aggregation of efficiency measures over time

differences in dynamic brand competition across markets an empirical analysis we investigate differences in the dynamics of marketing decisions across geographic markets empirically we begin with a linear quadratic game involving forward looking firms competing on prices and advertising based on the corresponding markov perfect equilibrium we propose estimable econometric equations for demand and marketing policy our model allows us to measure empirically the strategic response of competitors along with economic measures such as firm profitability we use a rich dataset that combines sales marketing mix factor cost and advertising cost data for eighteen geographic markets in the frozen entree category we find that larger markets tend to be less price sensitive and more profitable than smaller markets we also find evidence of positive carryover of own advertising on own demand in terms of consumer substitution patterns we find that the role of advertising in our data seems to be more category building complementary than share stealing competitive the complementary role is stronger in larger markets on the supply side we find that firms make smaller adjustments to own advertising as goodwill goes up consistent with cross advertising effects on demand firms make smaller larger adjustments to advertising in response to competitive goodwill in the less competitive larger in the more competitive smaller markets finally we find that consumer welfare decreases increases in larger smaller markets when firms move to a zero advertising regime

gender differences in revealed risk taking evidence from mutual fund investors abstract using data from a national survey of nearly 2000 mutual fund investors we investigate whether investor gender is related to risk taking as revealed in mutual fund investment decisions consonant with the received literature we find that women exhibit less risk taking than men in their most recent largest and riskiest mutual fund investment decisions more importantly we find that the impact of gender on risk taking is significantly weakened when investor knowledge of financial markets and investments is controlled in the regression equation this result suggests that the greater level of risk aversion among women that is frequently documented in the literature can be substantially but not completely explained by knowledge disparities

process innovation product differentiation and channel structure strategic incentives in a duopoly in this paper we analyze the joint implications of two effects a inserting independent profit maximizing retailers into thechannel system provides buffering to the manufacturers from price competition when their products are highly substitutable and intrachannel contracts are observable as shown by mcguire and staelin 1983 under the assumption of constant marginal production costs and b lack of channel coordination results in a reduction in manufacturer s incentives to invest in efforts to reduce production costs as shown by jeuland and shugan 1983 for the case of bilateral monopoly we show that both these results are robust in the sense that the first holds even in the presence of the vertical externality of manufacturer s effort reduction in a noncoordinated channel and the second holds regardless of the degree of substitutability between the competing channel s products specifically we analyze a four stage game with two manufacturers and two retailers where the intrachannel contracts are linear and observable and manufacturers make investments in process improvements to reduce their production costs we find that the optimal channel structure decision depends on interactions between two parameters the degree of substitutability between products and the level of investments required to achieve production cost reduction these parameters represent what have been widely interpreted in the management literature as the two primary generic strategies that most organizations follow in order to gain competitive advantage cost leadership and product differentiation porter 1980 thus our analysis brings out the strategic and interdisciplinary nature of the channel structure decision that can significantly affect firm profitability our main results are as follows first we find that decentralized noncoordinated channels appear as more profitable equilibrium than integration or perfectly coordinated channels at high product substitutability even when process innovation dimension is accounted for in agreement with the literature however the range of substitutability over which decentralization is an equilibrium strategy is smaller the easier it is to reduce production costs intuitively the easier the cost reduction the larger the cost penalty that the channel incurs as a result of not coordinating investment and pricing decisions between channel members and thus smaller the range over which decentralization is an equilibrium this implies that there is an explicit tradeoff between efficiency and strategic incentives in distribution channel design second we show that decentralized manufacturers invest less in process innovation than integrated manufacturers do regardless of the structure of the competing channel and the degree of substitutability between products consequently a decentralized channel has higher costs charges higher prices and produces lower quantities than an integrated channel does moreover these differences get larger the easier the cost reduction the effect on manufacturer profits however is not that clear manufacturers make higher profits by decentralizing if products are highly substitutable inagreement with mcguire and staelin 1983 and coughlan and wernerfelt 1989 however we also find that the relative profitability of decentralization at high substitutability and of integration at low substitutability increases the easier the cost reduction moreover the range of substitutability over which decentralization is more profitable than integration is itself larger the easier the cost reduction though decentralization is an equilibrium strategy over a smallerrange thus process innovation accentuates the profit difference between integrated and decentralized channels andmakes the prisoner s dilemma situation worse in the choice of distribution channel structure finally we analyze two examples of coordinated decision making in a channel a divisional integrated system and franchising in the first case we find that decentralization can emerge as a unique and more profitable equilibrium at high product substitutability in contrast to mcguire and staelin 1983 in the second case we find that decentralization is not always a unique equilibrium and it is not always more profitable than integration in sharp contrast to the results by coughlan and wernerfelt 1989 thus franchising does not provide a sure way of achieving channel coordination when marginal production costs are not constant in sum this paper highlights the importance of simultaneously considering both the horizontal and the vertical dimensions of interorganizational relations on one hand and on the other paying attention to cross functional interactions across marketing and operational decisions to better understand the underlying incentives that shape firm and market structures conventional focus of marketing on demand side effects and of operations on cost side effects can lead to suboptimal decisions

a dynamic efficiency model using data envelopment analysis abstract changes in productivity due to technological progress or regress are incorporated in models of data envelopment analysis dea in two ways either through a network technology or in terms of a capacity variable or capital input embodying technical progress the second way is analyzed here in terms of time varying capital inputs due to the changes in input prices over time this provides an optimal control theoretic view of the time path of capital inputs which minimizes a discounted sum of total input costs for each dmu the cost of risk aversion and the adjustment cost of input price fluctuations may then be minimized in an extended dea model framework these extensions of the dea model are analyzed here and illustrated by an empirical application to international airlines data

economics of efficiency measurement by the dea approach three aspects of efficiency measurement by data envelopment analysis are discussed here analytically these aspects comprise output specific input allocations by each firm flexibility in the production process and the role of learning by doing in efficiency improvement

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

an alternative conditioning scheme to explain efficiency differentials in banking abstract we investigate whether specialization ownership type or size bias bank efficiency the approach we apply focusing on the entire distributions of efficiency scores sheds light on the firms precise relative positions when controlling for these firms characteristics results suggest that conclusions related to this topic should consider these techniques given efficiency scores generated by nonparametric techniques are clearly dependent on each other in the statistical sense

a joint measurement of efficiency and effectiveness for non storable commodities integrated data envelopment analysis approaches efficiency and effectiveness for non storable commodities represent two distinct dimensions and a joint measurement of both is necessary to fully capture the overall performance this paper proposes two novel integrated data envelopment analysis idea approaches the integrated charnes cooper and rhodes iccr and integrated banker charnes and cooper ibcc models to jointly analyze the overall performance of non storable commodities under constant and variable returns to scale technologies the core logic of the proposed models is simultaneously determining the virtual multipliers associated with inputs outputs and consumption by additive specifications for technical efficiency and service effectiveness terms with equal weights we show that both iccr and ibcc models possess the essential properties of rationality uniqueness and benchmarking power a case analysis also demonstrates that the proposed novel idea approaches have higher benchmarking power than the conventional separate dea approaches more generalized specifications of idea models with unequal weights are also elaborated

local smoothness and the price of anarchy in splittable congestion games abstract congestion games are multi player games in which players costs are additive over a set of resources that have anonymous cost functions with pure strategies corresponding to certain subsets of resources in a splittable congestion game each player can choose a convex combination of subsets of resources we characterize the worst case price of anarchy a quantitative measure of the inefficiency of equilibria in splittable congestion games our approximation guarantee is parameterized by the set of allowable resource cost functions and degrades with the degree of nonlinearity of these cost functions we prove that our guarantee is the best possible for every set of cost functions that satisfies mild technical conditions we prove our guarantee using a novel local smoothness proof framework and as a consequence the guarantee applies not only to the nash equilibria of splittable congestion games but also to all correlated equilibria

rational inefficiency adjustment costs and sequential technologies abstract in this paper we propose a novel approach to estimate the rational inefficiency of decision making units in the presence of adjustment costs using sequential definitions of the production technology we show how cost inefficiency can be decomposed into rational and residual inefficiency as well as inefficiency caused by technical change furthermore we estimate lower bounds for the unobserved adjustment costs based on unexploited cost reductions due to rational inefficiency these adjustment costs are used to evaluate the feasibility of exploiting cost reductions caused by residual inefficiency we demonstrate the empirical applicability of our model by estimating and decomposing the cost inefficiency of u s coal fired power plants using panel data which cover the period between 1994 and 2009

the response of small and medium size business customers to time of use tou electricity rates in israel this paper reports on the methodology data and results of the israeli time of use tou electricity pricing experiment in the industrial commercial sector we concentrate on the estimation of the demand functions for electricity under tou and the net welfare gains which result from applying tou rates to small and medium size business customers in israel this experiment which was preceded by a 15 month load research study to allow an optimal sample design was concluded in june 1992 the analysis yielded four major conclusions 1 the estimated gains of small and medium size customers in israel from tou rates are sufficient to justify investment in tou metering technology 2 there have been small but noticeable shifts of electricity from the peak to the mid peak if relevant and to the off peak periods during all seasons of the year and particularly during the winter 3 the structure and number of labour shifts during the day and weather are important factors in determining the response of business customers to the tou rates 4 price elasticities vary substantially over the seasons and across sic groups they do not vary with customer size

optimal return and rebate mechanism in a closed loop supply chain game abstract within a closed loop supply chain clsc framework we study several consumer return behaviors for the used products which are based on the product prices and rebates consumers evaluate the rebate they receive as well as the price of the new product before deciding whether to dump a return therefore the number of used products returned is examined under two types of rebates a fixed rebate and a variable rebate we search for the optimal rebate mechanism and find that the clsc profits are higher under an variable rebate policy this finding justifies the industry practices that employ a rebate mechanism based on both the value and the price of used item we offer two types of solution concepts to the clsc games open loop stackelberg solution and markov perfect stackelberg solution which are commonly employed in the dynamic games literature while we mainly employ markovian equilibrium we also allow firms to utilize open loop strategies so as to assess the impact of precommitment on the market outcomes therefore we offer a comprehensive analysis of all possible market equilibrium solutions under different strategic considerations and the commitment deliberations we show that under the fixed rebate regime open loop solution coincides with markov perfect solution furthermore we show how consumer return behavior impacts the dynamic nature of the game we find that the time frame is irrelevant if firms offer a fixed rebate in contrast the game will be fully dynamic when firms offer a variable rebate

economic efficiency and frontier techniques abstract most of the literature related to the measurement of economic efficiency has based its analysis either on parametric or on non parametric frontier methods the choice of estimation method has been an issue of debate with some researchers preferring the parametric and others the non parametric approach the aim of this paper is to provide a critical and detailed review of both core frontier methods in our opinion no approach is strictly preferable to any other moreover a careful consideration of their main advantages and disadvantages of the data set utilized and of the intrinsic characteristics of the framework under analysis will help us in the correct implementation of these techniques recent developments in frontier techniques and economic efficiency measurement such as bayesian techniques bootstrapping duality theory and the analysis of sampling asymptotic properties are also considered in this paper

the eu regulation on cross border trade of electricity a two stage equilibrium model the regulation on cross border exchanges of electricity in the european union is meant to enhance the trade of electricity between member states by facilitating access to the network and improving the management of congestion at the interconnections this paper presents a computational model that embeds these two features the problem is cast in the form of a two stage equilibrium between regional regulators in the first stage they decide on the allocation of their regional network costs between generators and customers either they maximise their regional welfare non cooperatively nash equilibrium or they centralise the decision as a super regulator leading to a cooperative equilibrium in the second stage equilibrium the consequences of first stage s decisions are assessed by modelling the energy market as the result of imperfect competition equilibrium on competitive market coupled with regulated pricing on the domestic less competitive markets the rules that come out of the first stage game largely influence the final equilibrium we illustrate this on an extensive numerical example showing that the model behaves properly and identifying policy issues worth of further investigations c 2006 elsevier b v all rights reserved

what do consumers really pay on their checking and credit card accounts explicit implicit and avoidable costs consumers in the united states make billions of transactions each year using cash checks debit cards and credit cards bank and credit card accounts provide consumers with liquidity to clear and settle these transactions in return consumers pay a variety of fees and both explicit and implicit interest charges the importance of retail banking and credit markets to economic activity drives interest in many open policy and research questions do households borrow too much relative to a neoclassical benchmark christopher d carroll 2001 why do many households leave a substantial amount of money on the table in managing their accounts sumit agarwal et al 2006 david gross and nicholas souleles 2002 do firms structure pricing to exploit consumer cognitive biases or limitations stefano dellavigna and ulrike malmendier 2004 xavier gabaix and david laibson 2006 how do learning sumit agarwal john driscoll and gabaix 2008 and disclosure regulation stango and zinman 2009b interact with consumer decision making and firm strategy to determine market outcomes this paper examines some threshold questions that should inform the questions above what do people really pay to use their bank and credit card accounts and which cost components are the largest of all the costs that people pay which could they easily avoid by making different day to day choices and how stable are both the level of costs and the share of costs that are avoidable for a given person over time what do consumers really pay on their checking and credit card accounts explicit implicit and avoidable costs

the effects of perceived and actual financial literacy on financial behaviors a combined measure of financial literacy that includes both a test score of actual financial literacy and a self rating of overall financial literacy is used in this study we find that the combined measure appears to provide greater understanding about how financial literacy affects financial behaviors a large national survey of u s adults and households n 28 146 was used to investigate how this overall financial literacy is likely to change financial behaviors across five financial topics credit cards investments loans insurance and financial advice for each topic we include 4 5 financial behaviors 22 in total to demonstrate the consistency of the findings within and across topics although we are unable to identify a causal relationship the results from the probit analysis show that both actual and perceived financial literacy appear to influence financial behaviors and that perceived financial literacy may be as important as actual financial literacy jel d14 g00