are health insurance markets competitive to gauge the competitiveness of the group health insurance industry i investigate whether health insurers charge higher premiums ceteris paribus to more profitable firms such direct price discrimination is feasible only in imperfectly competitive settings using a proprietary national database of health plans offered by a sample of large multisite firms from 1998 2005 i find firms with positive profit shocks subsequently face higher premium growth even for the same health plans moreover within a given firm those sites located in concentrated insurance markets experience the greatest premium increases the findings suggest health care insurers are exercising market power in an increasing number of geographic markets

financing and funding health care optimal policy and political implementability health care financing and funding are usually analyzed in isolation this paper combines the corresponding strands of the literature and thereby advances our understanding of the important interaction between them we investigate the impact of three modes of health care financing namely optimal income taxation proportional income taxation and insurance premiums on optimal provider payment and on the political implementability of optimal policies under majority voting considering a standard multi task agency framework we show that optimal health care policies will generally differ across financing regimes when the health authority has redistributive concerns we show that health care financing also has a bearing on the political implementability of optimal health care policies our results demonstrate that an isolated analysis of optimal provider payment rests on very strong assumptions regarding both the financing of health care and the redistributive preferences of the health authority

diffusion of renewable energy technologies in south korea on incorporating their competitive interrelationships renewable energy technologies rets have attracted significant public attention for several reasons the most important being that they are clean alternative energy sources that help reduce greenhouse gas emissions to increase the probability that rets will be successful it is essential to reduce the uncertainty about its adoption with accurate long term demand forecasting this study develops a diffusion model that incorporates the effect of competitive interrelationships among renewable sources to forecast the growth pattern of five rets solar photovoltaic wind power and fuel cell in the electric power sector and solar thermal and geothermal energy in the heating sector the 2 step forecasting procedure is based on the bayus 1993 manage sci 39 11 1319 1333 price function and a diffusion model suggested by hahn et al 1994 marketing sci 13 3 224 247 in an empirical analysis the model is applied to the south korean renewable energy market

a parsimonious model for forecasting gross box office revenues of motion pictures the primary objective of this paper is to develop a parsimonious model for forecasting the gross box office revenues of new motion pictures based on early box office data the paper also seeks to provide insights into the impact of distribution policies on the adoption of new products the model is intended to assist motion picture exhibitor chains retailers in managing their exhibition capacity and in negotiating exhibition license agreements with distributors studios by allowing them to project the box office potential of the movies they plan to or currently exhibit based on early box office results it is also of interest to practitioners in other software industries e g music books cd roms where the distribution intensity is highly variable over the product life cycle and is an important determinant of new product adoption patterns the model and its extensions are of interest to academic researchers interested in modeling distribution effects in new product adoption as well as forecasters looking for ways to leverage historical data on related products to forecast the sales of new products we draw upon a queuing theory framework to conceptualize stochastically the consumer s movie adoption process in two steps the time to decide to see the new movie and the time to act on the adoption decision the parameter for the time to decide process captures the intensity of information intensity flowing from various information sources while the parameter for the time to act process is related to the delay created by limited distribution intensity and other factors our conceptualization extends existing new product forecasting models which assume that consumers act instantaneously on the motivating information they receive about the new product the resulting model is parsimonious yet it accommodates a wide range of adoption patterns in addition the stochastic formulation allows us to quantify the uncertainty surrounding the expected adoption pattern in the empirical testing we focus on the most parsimonious version of the modeling framework boxmod i a model that assumes stationarity with respect to the two shape parameters that characterize the adoption process the model produces fairly accurate early forecasts using at most the first three weeks of data for calibration and the predictive performance of the model compares favorably with benchmark models we propose extensions of the basic model that account for more realistic non stationary distribution intensity patterns including a wide release pattern that relies on intensive distribution and promotion and a platform release pattern that involves a gradual buildup of distribution intensity finally we present an adaptive weighing scheme that combines initial parameter estimates obtained from a meta analysis procedure with estimates obtained from early data to produce forecasts of box office revenues for a new movie when little or no box office data are available an important finding from the empirical testing is that motion picture box office revenue patterns display remarkable empirical regularity we find that there are only three classes of adoption patterns and these can all be represented within the basic model by using a two parameter exponential or erlang 2 probability distribution or a three parameter generalized gamma distribution we also find that cumulative box office revenues can be predicted with reasonable accuracy often within 10 of the actual using as little as two or three data points however our attempts to predict revenue patterns without any sales data meet with limited success while the scale parameter can be estimated reasonably well from a historical database of parameter values we find that it is considerably more difficult to predict the shape parameters using historical data the parsimony we seek in developing the model comes at the cost of several limiting assumptions we assume that the time to decide subprocess and the time to act subprocess are independent which may not be the case if decisions on continued exhibition by retailers are endogenously related to box office revenues over the life cycle in the basic model formulation we also assume that the time to act process can be represented by an exponential distribution which may not always be the case while we provide some empirical evidence to support these assumptions further research could relax these and other assumptions to enrich the basic model although this would entail some loss in parsimony

1 000 cash back the pass through of auto manufacturer promotions automobile manufacturers frequently use promotions involving cash incentives while payments are nominally directed to either customers or dealers the ultimate beneficiary of the promotion depends on the outcome of price negotiation we use program evaluation methods to compare the incidence of these two types of promotions customers obtain 70 to 90 percent of a customer rebate but only 30 to 40 percent of a dealer discount promotion a 500 difference for a typical promotion our leading hypothesis is that pass through rates differ because of information asymmetries customer rebates are well publicized to customers while dealer discount promotions are not

progressive taxation and the social marginal cost of public funds abstract this paper describes the calculation of the social marginal cost of public funds smcf for a progressive tax system which distorts individuals labour supply decisions a formula for the smcf indicates that the income and substitution effects of the labour supply response are weighted by the changes in individuals average and marginal tax rates respectively other well known formulas for the smcf are shown to be special cases of this formula the difference between this formula and the mayshar 1991 formula is shown to be due to different but equally valid ways of computing the change in the average tax rate the condition under which a marginal tax rate increase may lead to a reduction in revenues is derived

on the sign of the optimum marginal income tax this paper studies a central aspect of optimal income taxation as modelled in mirrlees original paper on the topic identical leisure consumption preferences qualitatively homogeneous skills in production namely whether given concave utilitarianism alone the optimal marginal income tax will be non negative a well known positive answer to this question in weak inequality form was given in the said paper which however we show requires additive separability of individual utility in the ordinal and cardinal senses our main result here is to derive the required strict positivity of the marginal tax under weak conditions slightly wider than noninferiority of consumption and leisure with preferences otherwise arbitrary

using price distributions to estimate search costs we show how the equilibrium restrictions implied by standard search models can be used to estimate search cost distributions using price data alone we consider both sequential and nonsequential search strategies and develop estimation methodologies that exploit equilibrium restrictions to recover estimates of search cost heterogeneity that are theoretically consistent with the search models we illustrate the method using online prices for several economics and statistics textbooks

taxation insurance and precautionary labor we examine optimal taxation and social insurance with adverse selection in competitive insurance markets in a previous literature it has been shown that with perfect insurance markets social insurance improves welfare since it is able to redistribute without creating distortions this result has been taken as robust to the introduction of adverse selection as this would only provide additional justifications for social insurance we show however that adverse selection can weaken the case for social insurance compared to a situation with perfect markets whenever social insurance mitigates private underinsurance it also causes welfare reducing effects by decreasing precautionary labor supply and hence tax revenue in addition adverse selection may reduce the redistributive potential of social insurance we illustrate our general results using different equilibrium concepts for the insurance market notably we derive conditions under which a complete renunciation of social insurance is optimal and the government only relies on income taxation to achieve its redistributive objectives

optimal linear and two bracket income taxes with idiosyncratic earnings risk abstract this paper quantitatively characterizes optimal linear and two bracket income taxes we consider a dynamic stochastic general equilibrium model in which tax design involves redistributing income for both equity and social insurance substantive findings include i a significant fraction of agents supply zero labor or hold zero assets at the optimum ii neglecting tax distortion imposed on either of labor leisure and consumption saving decisions will lead to the prescription of tax codes that deviate substantially from the optimum and iii the optimal two bracket tax schedule will turn from regressivity to progressivity in the marginal tax rate once the volatility of idiosyncratic shocks becomes sufficiently large the last finding is consistent with the results in apps et al forthcoming and it also reconciles the contradictory results regarding the optimal two bracket tax schedule between slemrod et al 1994 and strawczynski 1998

price discrimination in free entry markets using a spatial model of monopolistic competition we investigate price discrimination in free entry zero profit markets we show that when brands are heterogeneous competition does not prevent discrimination the power to earn economic profits is not necessary for a firm to maintain discriminatory prices our model treats formally the fact that consumers difer not only in the utility they derive from a good but also in how strongly they prefer one brand over all others in markets where firms are very competitive sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers reservation prices for the good when firms sort customers on the basis of strength of brand preference however we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers reservation prices

alternative supply chain production sales policies for new product diffusion an agent based modeling and simulation approach abstract applying agent based modeling and simulation abms methodology this paper analyzes the impact of alternative production sales policies on the diffusion of a new generic product and the generated npv of profit the key features of the abms model that captures the marketplace as a complex adaptive system are i supply chain capacity is constrained ii consumers new product adoption decisions are influenced by marketing activities as well as positive and negative word of mouth wom between consumers iii interactions among consumers taking place in the context of their social network are captured at the individual level and iv the new product adoption process is adaptive conducting over 1 million simulation experiments we determined the best production sales policies under various parameter combinations based on the npv of profit generated over the diffusion process the key findings are as follows 1 on average the build up policy with delayed marketing is the preferred policy in the case of only positive wom as well as the case of positive and negative wom this policy provides the highest expected npv of profit on average and it also performs very smoothly with respect to changes in build up periods 2 it is critical to consider the significant impact of negative word of mouth in choosing production sales policies neglecting the effect of negative word of mouth can lead to poor policy recommendations incorrect conclusions concerning the impact of operational parameters on the policy choice and suboptimal choice of build up periods

a new product growth for model consumer durables this article originally appeared in management science january 1969 volume 15 number 5 pp 215 227 published by the institute of management sciences a growth model for the timing of initial purchase of new products is developed and tested empirically against data for eleven consumer durables the basic assumption of the model is that the timing of a consumer s initial purchase is related to the number of previous buyers a behavioral rationale for the model is offered in terms of innovative and imitative behavior the model yields good predictions of the sales peak and the timing of the peak when applied to historical data a long range forecast is developed for the sales of color television sets

new product diffusion acceleration measurement and analysis it is a popular contention that products launched today diffuse faster than products launched in the past however the evidence of diffusion acceleration is rather scant and the methodology used in previous studies has several weaknesses also little is known about why such acceleration would have occurred this study investigates changes in diffusion speed in the united states over a period of 74 years 1923 1996 using data on 31 electrical household durables this study defines diffusion speed as the time it takes to go from one penetration level to a higher level and it measures speed using the slope coefficient of the logistic diffusion model this metric relates unambiguously both to speed as just defined and to the empirical growth rate a measure of instantaneous penetration growth the data are analyzed using a single stage hierarchical modeling approach for all products simultaneously in which parameters capturing the adoption ceilings are estimated jointly with diffusion speed parameters the variance in diffusion speed across and within products is represented separately but analyzed simultaneously the focus of this study is on description and explanation rather than forecasting or normative prescription there are three main findings 1 on average there has been an increase in diffusion speed that is statistically significant and rather sizable for the set of 31 consumer durables the average value of the slope parameter in the logistic model s hazard function was roughly 0 48 increasing with 0 09 about every 10 years it took an innovation reaching 5 household penetration in 1946 an estimated 13 8 years to go from 10 to 90 of its estimated maximum adoption ceiling for an innovation reaching 5 penetration in 1980 that time would have been halved to 6 9 years this corresponds to a compound growth rate in diffusion speed of roughly 2 between 1946 and 1980 2 economic conditions and demographic change are related to diffusion speed whether the innovation is an expensive item also has a sizable effect finally products that required large investments in complementary infrastructure radio black and white television color television cellular telephone and products for which multiple competing standards were available early on pcs and vcrs diffused faster than other products once 5 household penetration had been achieved 3 almost all the variance in diffusion speed among the products in this study can be explained by 1 the systematic increase in purchasing power and variations in the business cycle unemployment 2 demographic changes and 3 the changing nature of the products studied e g products with competing standards appear only late in the data set after controlling for these factors no systematic trend in diffusion speed remains unaccounted for these findings are of interest to researchers attempting to identify patterns of difference and similarity among the diffusion paths of many innovations either by jointly modeling the diffusion of multiple products as in this study or by retrospective meta analysis the finding that purchasing power demographics and the nature of the products capture nearly all the variance is of particular interest specifically one does not need to invoke unobserved changes in tastes and values as some researchers have done to account for long term changes in the speed at which households adopt new products the findings also suggest that new product diffusion modelers should attempt to control not only for marketing mix variables but also for broader environmental factors the hierarchical model structure and the findings on the systematic variance in diffusion speed across products are also of interest to forecasting applications when very little or no data are available

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic

forecasting and inventory management of short life cycle products in this paper we provide an integrated framework for forecasting and inventory management of short life cycle products the literature on forecasting and inventory management does not adequately address issues relating to short life cycle products we first propose a growth model that can be used to obtain accurate monthly forecasts for the entire life cycle of the product the model avoids limiting data requirements of traditional methods instead it extracts relevant information from past product histories and utilizes the information on total life cycle sales and the peak sales timing using disguised demand data from a personal computer pc manufacturer we validate the model next we model the inventory management problem for the short life cycle environment the uncertainty in demand is modeled through the uncertainty in the realized values of the parameters of the forecasting model the high cost of terminal inventory shortages and rapidly changing procurement costs are all included in the model extensions to the basic model are also developed using optimal control theory we derive a solution that provides valuable information on procurement cutoff time and terminal service levels a detailed example explains the characteristics of the policy and its relevance in decision making many of the issues covered in the models were brought to our attention while implementing a forecasting model at a pc manufacturer the benchmark monthly forecasts and the associated inventory levels provide information that can be very helpful in planning and controlling marketing sales and production

social insurance and redistribution with moral hazard and adverse selection rochet 1991 showed that with distortionary income taxes social insurance is a desirable redistributive device when risk and ability are negatively correlated this finding is re examined when ex post moral hazard and adverse selection are included and under different informational assumptions individuals can take actions influencing the size of the loss in the event of accident or ill health social insurance can be supplemented by private insurance but private insurance markets are affected by both adverse selection and moral hazard we study how equity and efficiency considerations should be traded off in choosing the optimal coverage of social insurance when those features are introduced the case for social insurance is strongest when the government is well informed about household productivity

managing demand and sales dynamics in new product diffusion under supply constraint the bass diffusion model is a well known parametric approach to estimating new product demand trajectory over time this paper generalizes the bass model by allowing for a supply constraint in the presence of a supply constraint potential customers who are not able to obtain the new product join the waiting queue generating backorders and potentially reversing their adoption decision resulting in lost sales consequently they do not generate the positive word of mouth that is typically assumed in the bass model leading to significant changes in the new product diffusion dynamics we study how a firm should manage its supply processes in a new product diffusion environment with backorders and lost sales we consider a make to stock production environment and use optimal control theory to establish that it is never optimal to delay demand fulfillment this result is interesting because immediate fulfillment may accelerate the diffusion process and thereby result in a greater loss of customers in the future using this result we derive closed form expressions for the resulting demand and sales dynamics over the product life cycle we then use these expressions to investigate how the firm should determine the size of its capacity and the time to market its new product we show that delaying a product launch to build up an initial inventory may be optimal and can be used as a substitute for capacity also the optimal time to market and capacity increase with the coefficients of innovation and imitation in the adoption population we compare our optimal capacity and time to market policies with those resulting from exogeneous demand forecasts in order to quantify the value of endogenizing demand

dynamic price competition in auto insurance brokerage we analyze brazilian data on auto insurance and document that a about 20 of policies are sold without brokerage commission b over 40 are sold at the highest fee allowed and c the remaining contracts are associated with a spread out distribution of fees static models cannot rationalize these findings we develop a dynamic model of price competition with search and switching costs that reproduces them we use the equilibrium structure to estimate the model parameters and infer the brokers expected earnings the frequency that insurees switch brokers and the counterfactual effects of a price ceiling policy

income related inequality in life years and quality adjusted life years abstract we estimate the income related inequality in sweden with respect to life years and quality adjusted life years qalys we use a large data set from sweden with over 40 000 individuals followed up for 10 16 years to estimate the survival and quality adjusted survival in different income groups for both life years and qalys we discover inequalities in health favouring the higher income groups for men women in the youngest age group 20 29 years the number of qalys is 43 7 45 7 in the lowest income decile and 47 2 49 0 in the highest income decile

matching search and bargaining abstract first the paper incorporates search for alternative opportunities into a model of strategic bargaining second this search and bargaining model is embedded in a market matching model the solutions are presented in a manner that clarifies the role of the search abilities and the details of the bargaining procedure in the determination of the outcomes the predictions of the model are contrasted with the related literature the main accomplishment is the attainment of a manageable model which is still rich enough to grasp important differences between environments which are not captured by the standard matching models

price dispersion in mortgage markets using transaction level data on canadian mortgage contracts we document an increase in the average discount negotiated off the posted price and in rate dispersion our aim is to identify the beneficiaries of discounting and to test whether dispersion is caused by price discrimination the standard explanation for dispersion in credit markets is risk based pricing our contracts are guaranteed by government backed insurance so risk cannot be the main factor we find that lenders set prices that reflect consumer bargaining leverage not just costs the presence of dispersion implies a lack of competition but our results show this to be consumer specific

social insurance and the optimum piecewise linear income tax abstract this paper calculates optimal linear income taxes when differences in income are caused by random factors luck rather than by unobserved individual skills as assumed in the classical theory of income taxation as first shown by varian 1980 varian h r 1980 redistributive taxation as social insurance journal of public economics 14 49 68 in the former case income taxation acts as social insurance by introducing life uncertainty and precautionary behavior we find higher optimal marginal tax rates than those found by varian we also find that in the context of a piecewise two bracket linear tax schedule the second marginal tax is higher than the first a finding that contrasts with results recently obtained in the framework of classical income taxation theory which show a lower second marginal tax

capacity decisions for high tech products with obsolescence abstract modern high tech products experience rapid obsolescence capacity investments must be recouped during the brief product lifecycle during which prices fall continuously we employ a multiplicative demand model that incorporates price declines due to both market heterogeneity and product obsolescence and study a monopolistic firm s capacity decision we investigate profit concavity and characterize the structure of the optimal capacity solution moreover for products with negligible variable costs we identify two distinct strategies for capacity choice demarcated by an obsolescence rate threshold that relates both to market factors and capacity costs finally we empirically test the demand model by analyzing shipping and pricing data from the pc microprocessor market

note on the shape of the optimum income tax schedule abstract we consider the class of two bracket piecewise linear tax schedules sheshinski 1971 1972 and provide sufficient conditions for the optimum income tax schedule to have positive marginal rates and to be strictly convex calculations yield optimum tax rates between 20 and 35 percent and moderate rate progression the max min optimum has higher tax rates but not necessarily more rate progression than the utilitarian optimum the conditions are quite general postulating nondecreasing income effects as the level of income increases

the optimal two bracket linear income tax abstract we investigate two bracket piecewise linear income tax structures in a two class economy pareto efficient tax schedules of this type feature at least one marginal tax rate equal to zero and that the marginal tax rate may be increasing and declining we then investigate the optimal structure of taxation when the social welfare function utility function and distribution of abilities are characterized as in the standard optimal linear income tax problem in all cases the second marginal tax rate is less than the first rate but progressivity in the sense of a uniformly rising average tax rate generally obtains

price discrimination and bargaining empirical evidence from medical devices many important issues in business to business markets involve price discrimination and negotiated prices situations where theoretical predictions are ambiguous this paper uses new panel data on buyer supplier transfers and a structural model to empirically analyze bargaining and price discrimination in a medical device market while many phenomena that restrict price discrimination are suggested as ways to decrease hospital costs e g mergers group purchasing organizations and transparency i find that 1 non discriminatory pricing actually works against hospitals because competition is more intense under price discrimination and 2 results depend ultimately on a previously unexplored bargaining effect

dealer price discrimination in new car purchases evidence from the consumer expenditure survey this paper documents the variation in dealer discounts for new cars using transactions price data from the consumer expenditure survey consumer specific characteristics fail to explain dealer discounts whereas model market specific and purchase transaction variables e g first time purchase trade in and financing through dealer do explain them the results contradict earlier findings of race and gender discrimination based on a controlled experiment this contradiction is reconciled by examining the higher moments of the empirical discount distribution while mean and median markups do not vary by race and gender minority purchases are characterized by higher dispersion this may rationalize the disparate treatment of minorities by dealers documented in the controlled experiment

optimal income taxation an example with a u shaped pattern of optimal marginal tax rates comment using the mirrlees optimal income tax model with quasi linear preferences the paper examines conditions for marginal tax rates to be rising at high income levels and declining in an interval containing the modal skill it examines conditions for the marginal tax rate to be higher at a low skill level than at the high skill level with the same density an argument only holding for skill levels above a cutoff where resources of a worker are marginally of the same value as resources of the government data on earnings rates are presented copyright 1998 by american economic association

search frictions and market power in negotiated price markets we provide a framework for empirical analysis of negotiated price markets using mortgage market data and a search and negotiation model we characterize the welfare impact of search frictions and

information and bank credit allocation abstract private information obtained by lenders leads to borrower capture to the extent that such information cannot be communicated credibly to outsiders we analyze how this capture affects the loan portfolio allocation of informed lenders first we show that banks charge higher interest rates and finance relatively less creditworthy borrowers in market segments with greater information asymmetries second when faced with greater competition from outside lenders banks reallocate credit toward more captured borrowers flight to captivity third if borrower quality and captivity are sufficiently correlated an increase in the competitiveness of uninformed lenders can worsen the informed lender s overall loan portfolio the model explains observed consequences of financial liberalizations

optimal linear income tax with random revenue abstract this paper introduces the concept of risk attitudes a government may take toward random revenue in the design of a linear income tax it shows that the familiar trade off formula between equity and efficiency can be derived either by assuming a risk neutral government attitude toward random revenue or by assuming no randomness of revenue we provide numerical analysis to demonstrate that optimum tax schedules for a non risk neutral government can significantly deviate from those for a risk neutral government

a piecewise diffusion model of new product demands the bass model bm is a widely used framework in marketing for the study of new product sales growth its usefulness as a demand model has also been recognized in production inventory and capacity planning settings the bm postulates that the cumulative number of adopters of a new product in a large population approximately follows a deterministic trajectory whose growth rate is governed by two parameters that capture i an individual consumer s intrinsic interest in the product and ii a positive force of influence on other consumers from existing adopters a finite population purebirth process re formulation of the bm called the stochastic bass model sbm was proposed recently by the author in a previous paper and it was shown that if the size of the population in the sbm is taken to infinity then the sbm and the bm agree in probability in the limit thus the sbm expands the bm in the sense that for any given population size it is a well defined model in this paper we exploit this expansion and introduce a further extension of the sbm in which demands of a product in successive time periods are governed by a history dependent family of sbms one for each period with different population sizes a sampling theory for this extension which we call the piecewise diffusion model pdm is also developed we then apply the theory to a typical product example demonstrating that the pdm is a remarkably accurate and versatile framework that allows us to better understand the underlying dynamics of new product demands over time joint movement of price and advertising levels in particular is shown to have a significant influence on whether or not consumers are ready to participate in product purchase subject classifications marketing new products buyer behavior pricing probability diffusion inventory production stochastic nonstationary demand area of review manufacturing service and supply chain operations history received august 2003 revision received september 2004 accepted july 2005

allocating spending between advertising and information technology in electronic retailing this study examines coordination issues that occur in allocating spending between advertising and information technology it in electronic retailing electronic retailers run the risk of overspending on advertising to attract customers but underspending on it thus resulting in inadequate processing capacity at the firm s website in this paper we present a centralized joint marketing it model to optimally allocate spending between advertising and it and we discuss an uncoordinated case where marketing and it make suboptimal advertising and capacity decisions we show how these decisions can be coordinated either by reducing the value of a customer session or by designing an optimal processing contract between marketing and it both the coordination methods can be implemented with only local knowledge of the it function yet they generate a solution that almost matches the quality of the centralized solution we extend our basic model to consider demand uncertainty lagged advertising effects and uncertainties in the lead time to acquire it capacity with demand uncertainty electronic retailers should reduce spending on advertising and increase it capacity if there is potential for a demand upswing and the cost of it capacity is relatively low the value of a customer session should be further reduced when uncertainties exist this is required to share the risk of excess or inadequate it capacity

an empirical model of search with vertically differentiated products this paper presents a nonsequential search model that allows for vertical product dierentiation in the unique symmetric equilibrium firms with dierent characteristics draw utilities from a common utility distribution because the firms dier in their characteristics this leads to dierent price distributions the model therefore provides a theoretical rationale for explaining price dispersion as a result of quality dierences and search behavior of consumers together using the equilibrium conditions derived from the model it is shown how to estimate search costs by maximum likelihood using only price data a data set on prices from dutch supermarkets reveals that the amount of search has decreased over the sampling period moreover ignoring vertical product dierentiation results in an overestimation of search costs

strategic pricing consumer search and the number of firms discover prices there are three distinct price dispersed equilibria characterized by low moderate and high search intensity the effects of an increase in the number of firms on search behaviour expected prices price dispersion and welfare are sensitive i to the equilibrium consumers search intensity and ii to the status quo number of firms for instance when consumers search with low intensity an increase in the number of firms reduces search does not affect expected price leads to greater price dispersion and reduces welfare in contrast when consumers search with high intensity increased competition results in more search and lower prices when the number of competitors in the market is low to begin with but in less search and higher prices when the number of competitors is large duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms a question that has received much attention in economic theory is how the number of competitors and market outcomes are related despite the existence of work showing the contrary see e g satterthwaite 1979 rosenthal 1980 the prediction that emerges from a market where firms interact in a cournot fashion has come to dominate economic thought namely that an increase in the number of competitors leads to larger aggregate production lower market price and improved market performance measured in terms of some social welfare criterion ruffin 1971 this paper challenges the generality of this belief by presenting an oligopoly model with consumer search where the equilibrium expected price may be constant increasing or nonmonotonic in the number of firms we present an economy with two types of consumers consumers who search for prices at no cost fully informed and consumers who must pay a fixed search cost for each price quotation they observe less informed 1 all buyers have the same willingness to pay for the good and buy either a single unit or nothing at all on the supply side of the market there are n firms producing a homogeneous good at constant marginal cost we analyse a one shot simultaneous move game firms set prices and consumers decide how many prices to search for at the same moment in time our model is essentially an oligopolistic version of burdett and judd 1983 where some consumers search costlessly in this model consumers search using a fixed sample size search strategy i e they choose the number of prices to observe before receiving any offer nonsequential search is appealing when consumers find it more advantageous to gather price information quickly morgan and manning 1985 this occurs when the search outcome is observed with delay and delay is costly for instance an mba graduate looking for a job 1 the presence in the model of consumers who search costlessly captures the fact that some people have a

premium subsidies and social health insurance substitutes or complements premium subsidies have been advocated as an alternative to social health insurance these subsidies are paid if expenditure on health insurance exceeds a given share of income in this paper we examine whether this approach is superior to social health insurance from a welfare perspective we show that the results crucially depend on the correlation of health and productivity for a positive correlation we find that combining premium subsidies with social health insurance is the optimal policy

a tax programming model abstract this paper presents a new technique for analysing tax reform proposals the technique is general in the sense that it allows the user to choose the targets he thinks are the most important using this technique the israeli income tax reform of 1975 is evaluated

diffusion of innovations under supply constraints in this paper we present a canonical setting that illustrates the need for explicitly modeling interactions between manufacturing and marketing sales decisions in a firm we consider a firm that sells an innovative product with a given market potential the firm may not be able to meet demand due to capacity constraints for such firms we present a new model of demand modified from the original model of bass to capture the effect of unmet past demand on future demand we use this model to find production and sales plans that maximize profit during the lifetime of the product in a firm with a fixed production capacity we conduct an extensive numerical study to establish that the trivial myopic sales plan that sells the maximal amount possible at each time instant is not necessarily optimal we show that a heuristic build up policy in which the firm does not sell at all for a period of time and builds up enough inventory to never lose sales once it begins selling is a robust approximation to the optimal policy specializing to a lost sales setting we prove that the optimal sales plan is indeed of the build up type we explicitly characterize the optimal build up period and analytically derive the optimal initial inventory and roll out delay finally we show that the insights obtained in the fixed capacity case continue to hold when the firm is able to dynamically change capacity

liquidity constraints and imperfect information in subprime lending ditions for precisely the population that is most likely to have a difficult time obtaining credit those with low incomes and poor credit histories these consumers who typically cannot qualify for regular bank loans comprise the so called subprime market because the company we study originates subprime loans its loan applications and transaction records provide an unusual win dow into the consumption and borrowing behavior of households that are rationed in primary credit markets moreover we track loan repayments allowing us to analyze the difficulties in lending to the subprime population we begin by documenting the importance of short term liquidity constraints for individuals in our sample we present two pieces of evidence both are based on purchasing behavior and indicate a high sensitivity to cash on hand first we document a dramatic degree of demand seasonality associated with tax rebates overall demand is almost 50 percent higher during tax rebate season than during other parts of the year this seasonal effect varies with household

technology and demand forecasting for carbon capture and storage technology in south korea among the various alternatives available to reduce greenhouse gas ghg emissions carbon capture and storage ccs is considered to be a prospective technology that could both improve economic growth and meet ghg emission reduction targets despite the importance of ccs however studies of technology and demand forecasting for ccs are scarce this study bridges this gap in the body of knowledge on this topic by forecasting ccs technology and demand based on an integrated model for technology forecasting a logistic model and patent network analysis are used to compare the competitiveness of ccs technology for selected countries for demand forecasting a competition diffusion model is adopted to consider competition among renewable energies and forecast demand the results show that the number of patent applications for ccs technology will increase to 16 156 worldwide and to 4 790 in korea by 2025 we also find that the united states has the most competitive ccs technology followed by korea and france moreover about 5 million tco2e of ghg will be reduced by 2040 if ccs technology is adopted in korea after 2020

public health insurance and optimal income taxation abstract if individuals differ not only in their inherent capacity to earn income but also in the probability that they will fall ill can subsidized public health insurance be justified on the grounds that it serves as an efficient tool to redistribute welfare this question is analyzed in a model where the social welfare function is a weighted average of individual expected utilities and where taxation is by a linear income tax the answer is yes except in certain special cases

diagnosing consumer confusion and sub optimal shopping effort theory and mortgage market evidence mortgage loans are leading examples of transactions where experts on one side of the market take advantage of consumers lack of knowledge and experience we study the compensation that borrowers pay to mortgage brokers for assistance from application to closing two findings support the conclusion that confused borrowers overpay for brokers services i a model of effective shopping shows that bor rowers sacrifice at least 1 000 by shopping from too few brokers ii borrowers who compensate their brokers with both cash and a commission from the lender pay twice as much as similar borrowers who pay no cash jel d12 d14 g21 we study a large and financially complex expenditure that the majority of consumers make only a few times in their lives the payment for mortgage origination services in these transactions information is not only imperfect but traditional market practices have likely contributed to consumer confusion these payments range from 0 to 30 000 for mortgages of normal size mortgage brokers receive payments from both borrowers and from wholesale lenders on most loans broker fees paid in cash by the borrower are usually broken down into more than a dozen individual items such as origination fee discount points funding fee and doc prep in addition to these cash payments about half of the value that the bor rower transfers to the broker takes the form of a payment from the wholesale lender to the mortgage broker the borrower bears the burden of this part of the payment in the form of a higher interest rate on the loan these payments compensate mortgage brokers for arranging mortgage loans we stress that this paper is about how and how much borrowers pay their brokers for origination services the broker is an administrator of the process of loan origination the broker bears none of the risk of default on the mortgage so that risk is not a determinant of the broker s compensation under standard theories of pricing because consumers enter the mortgage market infrequently and because features of the market make it difficult to learn the best price mortgage origination pricing

bargaining and search with incomplete information about outside options abstract this paper considers a model of bargaining in which the seller makes offers and the buyer can search at a cost for an outside option the outside option cannot be credibly communicated and the seller s offer is recallable by the buyer for one period there are essentially two equilibrium regimes for sufficiently high search cost the game ends immediately otherwise the search occurs in equilibrium compared to the case where the buyer can communicate his outside option the seller is worse off and the game results in search for a smaller set of values of the search cost i e less equilibrium delay c72

risk aversion performance pay and the principal agent problem this paper calculates numerical solutions to the principal agent problem and compares the results to the stylized facts of ceo compensation the numerical predictions come from parameterizing the models of grossman and hart and of holmstrom and milgrom while the correct incentives for a ceo can greatly enhance a firm s performance providing such incentives need not be expensive for many parameter values ceo compensation need increase only by about 10 for every 1 000 of additional shareholder value for some values the amount is 0 003 cents

an equilibrium model of health insurance provision and wage determination we investigate the effect of employer provided health insurance on job mobility rates and economic welfare using a search matching and bargaining framework in our model health insurance coverage decisions are made in a cooperative manner that recognizes the productivity effects of health insurance as well as its nonpecuniary value to the employee the resulting equilibrium is one in which not all employment matches are covered by health insurance wages at jobs providing health insurance are larger in a stochastic sense than those at jobs without health insurance and workers at jobs with health insurance are less likely to leave those jobs even after conditioning on the wage rate we estimate the model using the 1996 panel of the survey of income and program participation and find that the employer provided health insurance system does not lead to any serious inefficiencies in mobility decisions

a reply to new product diffusion decisions under supply constraints in our prior work on product diffusions in presence of a capacity constraint we postulated that a firm operating in such an environment should always attempt to fulfill as much of the present demand as is possible with the capacity constraint in other words the firm would never have demand backlogged while accumulating inventory in this note we derive a sufficient condition for the optimality of such fulfillment policy this paper was accepted by candace a yano operations management

big banks and macroeconomic outcomes theory and cross country evidence of granularity does the mere presence of big banks affect macroeconomic outcomes we develop a theory of granularity for the banking sector by modeling heterogeneous banks charging variable markups using data for a large set of countries we show that the banking sector is indeed granular as the right tail of the bank size distribution follows a power law we demonstrate empirically that the presence of big banks measured by a high degree of market concentration is associated with a positive and significant relationship between bank level credit growth and aggregate growth of credit or gdp

planning operations before market launch for balancing time to market and risks in pharmaceutical supply chains abstract shorter product life cycles and the resulting increase in new product introductions boost the importance of product launch operations in the pharmaceutical sector product launch operations are of particular importance as companies seek to reduce time to market to better exploit patent protection large volumes of product need to be ready to fill the downstream supply chain immediately at market launch building up the required inventory is however connected to several risks in addition to the risk associated with the lack of demand information for a new product there are several risks unique to the pharmaceutical sector after approval by central authorities such as the fda or ema a new drug still needs to receive market authorization which is in most cases granted by some local authorities in europe for example by more than 30 national and regional bodies the duration of these different market authorization processes as well as their outcomes e g price and reimbursement levels requirements of label or leaflet changes are highly uncertain we develop a two stage stochastic model to support market launch preparation decisions it trades off the costs of accepting these risks for example by risk packaging before authorization against the lost revenue caused by risk averse operations the model is applied to a case based on an empirical study our approach results in significant savings compared to current practices we hereby provide an example of how quantitative methodology can provide valuable decision support for product launch operations even when complex regulatory affairs need to be considered

piecewise linear incentive schemes general outlook and stabilization theories and policies of piecewis e linear incentive schemes are studied in a setting of moral hazard and adverse selection the form of the best such function is analyzed particular attention is given to the loss from using piecewise linear schemes relative to optimal schemes as well as the gain from usin g simpler functional forms such as the linear functions the incentive problem is studied under various informational assumptions which allow some calculations of the value of information copyright 1988 by the editors of the scandinavian journal of economics

new product diffusion decisions under supply constraints two recent papers on managing new product diffusion decisions under production constraints reach somewhat contradictory conclusions ho et al ho t h s savin c terwiesch 2002 managing demand and sales dynamics in new product diffusion under supply constraint management sci 48 2 187 206 show that it is never optimal to refuse to satisfy any customers when the firm has inventory of the product on the other hand in a very similar model kumar and swaminathan kumar s j m swaminathan 2003 diffusion of innovations under supply constraints oper res 51 6 866 879 show that production constraints may in fact lead a firm to reject customers orders even when the firm has the inventory to satisfy them to slow down new product diffusion we provide a counterexample to the results of ho et al 2002 and show that in their and kumar and swaminathan s 2003 models it may be optimal to deny customers a product in inventory we provide a generalization of both models that includes the ability to dynamically price the product and also allows capacity and production costs to vary over time we show that the unintuitive but optimal behavior of denying customers products that are in inventory disappears when the firm can dynamically set prices this paper was accepted by candace a yano operations and supply chain management

true monopolistic competition as a result of imperfect information the paper restates hart s 1985a 1985b definition of large group monopolistic competition distinguishes it from oligopolistic competition and raises the question of whether there are reasonable circumstances that give rise to true monopolistic competition as defined the purpose is to show that consumers imperfect information may create conditions that will turn an otherwise oligopolistic market into a truly monopolistically competitive one