nonrenewable resources with switching costs abstract this paper considers a firm s decision to commence or to suspend extraction of a nonrenewable resource when there are start up or shut down costs for a given level of reserves the critical price that would cause an inactive mine to be opened exceeds the price that would induce an active mine to be closed as one would expect greater switching costs cause firms to be less inclined to change status this impact can be substantial even for modest switching costs possible implications of switching costs are considered including the potential for firms to abandon mines with economically valuable remaining reserves

testing the option value theory of irreversible investment this article statistically tests the option theory of irreversible investment using contingent claims valuation we derive the value of options to invest in capacity where the projects are endogenous to the economic circumstances prevailing at the investment date we then test whether decisions made by canadian copper mines are compatible with the trigger price implied by the theory our model explains investment size and timing satisfactorily from a statistical and an economic point of view simulations with a mean reverting process suggest that the results do not depend crucially on the assumption that price follows a geometric brownian motion

the influence of private contractual failure on regulation the case of oil field unitization an analysis of the interdependence between regulation and private contractual failure reveals that the feasible range of regulation is restricted by the same forces that block private agreement the focus of the study is oil field unitization regulation in oklahoma texas and wyoming federal lands from 1948 through 1975 despite large potential gains from unitization private negotiations fail because of lease heterogeneities and information problems regarding lease value estimates in response the federal and state governments have adopted strikingly different policies to encourage unitization with different results only the federal government s regulations are effective because they surmount information problems texas has the least successful regulation the paper argues that the policy differences are due to the political influence of small firms that benefit from nonunitized production 25 references 2 tables

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

are we realizing our potential joining up science and technology policy in the english regions science policy in england is determined within a governance system in which regional interests and perspectives are over looked in favour of short term national excellence regional policies and the creation of the new regional development agenciesboth are critically dependent on central government decisions over the spatial location of rd thus regional diverences and strengths are overlooked by whitehall departments in favour of the most vocal and well networked representatives from a limited number of companies uneven scientific development with a lack of diversity in england is not a rational market decision but a continually reinforcing consequence of a chain of government policy decisions

a generalized quantity discount pricing model to increase supplier s profits in this paper the joint problem of ordering and offering price discount by a supplier to his sole major buyer is analyzed the objective is to induce the buyer to alter his order schedule and size so that the supplier can benefit from lower set up ordering and inventory holding costs we generalize the quantity discount pricing model of monahan monahan j p 1984 a quantity discount pricing model to increase vendor profits management sci 30 6 720 726 to 1 explicitly incorporate constraints imposed on the amount of discount that can be offered and 2 relax the implicit assumption of a lot for lot or order for order policy adopted by the supplier an algorithm is developed to solve the supplier s joint ordering and price discount problem

contractual responses to the common pool prorationing of crude oil production this paper examines bargaining among firms to mitigate rent dissipation following the major oil discoveries of 1926 35 because of high bargaining costs firms chose prorationing instead of consolidation and unitization and success varied the analysis also shows that prorationing took the form it did because concession such as per well quotas were required to draw in small operations and the quotas led to predictable responses regarding rent dissipation prorationing despite its costs controlled total field production and costs conserved natural reservoir energies and lengthened field life when private agreements failed the parties successfully appealed for state enforcement since similar heterogeneities influnce regulations elsewhere in the economy detailed analysis of bargaining among firms is essential for insight into the emergence of various institutional forms 33 references 3 tables

non cooperative negotiation strategies for vendor selection vendor selection decisions are typically multi objective in nature in an environment of competing vendors for a product or service some vendors are selected and some are not this paper describes three approaches for the selection and negotiation with vendors who were not selected furthermore it describes how in certain situations two multi criteria analysis tools multi objective programming and data envelopment analysis can be used together for this selection and negotiation process the paper describes non cooperative vendor negotiation strategies where the selection of one vendor results in another being left out of the solution

structural estimation of real options models we propose a numerical approach for structural estimation of a class of discrete markov decision processes emerging in real options applications the approach is specifically designed to account for two typical features of aggregate data sets in real options the endogeneity of firms decisions the unobserved heterogeneity of firms the approach extends the nested fixed point algorithm by rust 1987 optimal replacement of gmc bus engines an empirical model of harold zurcher econometrica 55 5 999 1033 1988 maximum likelihood estimation of discrete control processes siam journal of control and optimization 26 5 1006 1024 because both the nested optimization algorithm and the integration over the distribution of the unobserved heterogeneity are accommodated using a simulation method based on a polynomial approximation of the value function and on recursive least squares estimation of the coefficients the monte carlo study shows that omitting unobserved heterogeneity produces a significant estimation bias because the model can be highly non linear with respect to the parameters

valuing managerial flexibility an application of real option theory to mining investments abstract the value of managerial flexibility is assessed using data on prices costs grades reserves ore extraction and metal output for a panel of canadian copper mines a real option model is estimated and solved for project and option values most empirical researchers i consider the initial investment decision but neglect flexible operation thereafter ii assume that price is stochastic but ignore cost and reserve uncertainty and iii model price as a nonstationary stochastic process the evolution of three state variables price cost and reserves is assessed here differences in assumptions compared to others are found to lead to large differences in estimated project and option values

optimal investments using empirical dynamic programming with application to natural resources a number of problems arise when dynamic programming is applied to investment problems attempts have been made to circumvent these problems by using continuous time models where the state process is generated by a stochastic differential equation in this article the authors assume that the state process is described by a discrete markov time series model with empirically determined transition probabilities standard computer algorithms can then be used to obtain optimal policies they apply their methods to two examples in natural resources one of which has previously been analyzed by m j brennan and e s schwartz 1985 using continuous time models the authors show that the optimal policies depend critically on the specification of the state process and to a certain extent on the discretization level used in the markov approximation copyright 1989 by the university of chicago

an evaluation of vendor selection models from a total cost of ownership perspective abstract many different vendor selection models have been published in the purchasing literature however there has been no systematic approach to compare the relative efficiency of the systems in this paper we propose to use the concept of total cost of ownership as a basis for comparing vendor selection models we illustrate the comparison with a real life data set of the purchasing problem of ball bearings at cockerill sambre a belgian multinational company in the steel industry from a total cost of ownership perspective mathematical programming models outperform rating models and multiple item models generate better results than single item models for this specific case study

on the validity of aggregate models in designing supply chain contracts abstract the vast majority of the existing papers on supply chain contracts analyse these contracts based on a highly aggregate model description of the supply chain recognizing the high complexity of real supply chain systems such models can naturally only be rough approximations of reality out of the many possible ways for aggregating a planning model our study focuses on item aggregation here due to computational informational or organizational reasons a multi product reality is approximated by a model representation with fewer products we explore the aggregation error made when using an aggregate model in order to optimize a supply chain contract which is subsequently applied to a more detailed real system based on a numerical analysis it is shown that the design of supply chain contracts by means of an aggregate planning model may lead to significant suboptimalities

analysis of supply contracts with minimum total order quantity commitments and non stationary demands abstract in this paper we address a buyer supplier arrangement of particular importance total order quantity commitment toqc under the toqc contract that has been negotiated between the buyer and the supplier the former agrees to an obligation to procure a certain quantity of an item from the latter over the predetermined period of time additional quantity can be obtained maybe at a different price the optimal inventory replenishment policy is shown to be dual order up to levels under a given toqc and the optimal toqc is also demonstrated to be mathematically straightforward to obtain

a dynamic model of cleanup estimating sunk costs in oil and gas production the environmental remediation required to permanently decommission most industrial projects is an expensive irreversible investment real options literature shows that temporary closure has value under uncertainty however even if there is no intention to restart operations there is an incentive to label a closure as temporary to avoid having to remediate ongoing or future environmental externalities i estimate a dynamic discrete choice model of closure under price and quantity uncertainty to evaluate the likelihood of reactivation the model reveals that the option to temporarily close is being widely used to avoid environmental remediation of oil and gas wells in canada

technological capabilities and patterns of innovative cooperation of firms in the uk regions iammarino s piva m vivarelli m and von tunzelmann n technological capabilities and patterns of innovative cooperation of firms in the uk regions regional studies this paper focuses on the relationship between firms technological capabilities and different forms of cooperation for innovation paying specific attention to the role of regional location of the firm the findings based on the fourth uk community innovation survey cis4 show that cooperation within business groups vertical cooperation with customers and suppliers and horizontal cooperation with universities turn out to be significantly associated with firms technological capabilities however it is found that the analysis for the uk as a whole masks stark regional differences in terms of the relationship between local and non local collaborative linkages and firms technological capabilities and competences iammarino s piva m vivarelli m and von tunzelmann n

discount pricing decisions in distribution channels with price sensitive demand abstract in this paper we evaluate the effectiveness of quantity discounts and volume discounts as coordination mechanisms in distribution channels with demand that is price sensitive we consider a single vendor single retailer distribution channel demand for the product arises only at the retailer the demand faced by the retailer is assumed to be deterministic but price elastic the retailer in turn buys the product from the vendor the vendor and the retailer act independently and rationally each maximizing their own respective profit the equilibrium point that specifies the vendor s and buyer s inventory and pricing policy is determined by the solution to a stackelberg game we consider the cases when quantity discount and volume discount respectively are offered we develop methods to determine the optimal discount policy for these cases we then consider the case where both volume and quantity discounts are offered simultaneously and develop a method to determine the optimal simultaneous discount offer the relative performance of the alternative discount schemes is then evaluated through a numerical study the results of the study demonstrate that the effectiveness of volume discount as a coordination mechanism is higher when the sensitivity of demand to price changes is higher the effectiveness of quantity discount on the other hand is higher with lower price sensitivity of demand finally the results also demonstrate that perfect coordination is achieved when volume and quantity discounts are offered simultaneously

selection of contract suppliers under price and demand uncertainty in a dynamic market in this paper we consider a supply contracting problem in which the buyer firm faces non stationary stochastic price and demand first we derive analytical results to compare two pure strategies i periodically purchasing from the spot market and ii signing a long term contract with a single supplier the results from the pure strategies show that the selection of suppliers can be complicated by many parameters and is particularly affected by price uncertainty we then develop a stochastic dynamic programming model to incorporate mixed strategies purchasing commitments and contract cancellations computational results show that increases in price demand uncertainty favor long term short term suppliers by examining the two way interactions of contract factors price demand purchasing bounds learning and technology effect salvage values and contract cancellation both intuitive and non intuitive managerial insights in outsourcing strategies are derived

option valuation of claims on real assets the case of offshore petroleum leases this paper extends financial option theory by developing a methodology for the valuation of claims on a real asset an offshore petroleum lease several theoretical and practical problems not present in applying option pricing theory to financial assets are addressed most importantly we show the necessity of combining option pricing techniques with a model of equilibrium in the market for the underlying asset petroleum reserves the advantages of this approach over conventional discounted cash flow techniques are emphasized the methodological development provides important insights for both company behavior and government policy promising empirical results are reported

a well based cost function and the economics of exhaustible resources the case of natural gas abstract a cost function for natural gas production is estimated using a pool of data from 29 wells statistically exact tests are performed for parameter stability across locations formations wells and producing firms costs are determined to be inversely related to remaining recoverable reserves and marginal costs of production are decreasing in all cases theoretical implications of these cost characteristics on optimal exhaustible resource extraction are analyzed although marginal cost is decreasing production effects on the resource stock imply that an interior production path may be optimal conditions under which production optimally occurs at the capacity bound are delineated and optimal interior production paths are characterized

quantity discounts managerial issues and research opportunities marketing managers frequently administer pricing policies involving substantial quantity discounts however our understanding of the precise role of these discounts and their design is quite limited this paper reviews and integrates the economics and marketing literature and presents a detailed analysis of the policies of four firms in order to i specify the variety of motivations for quantity discounts ii provide guidelines to managers in designing quantity discount schedules and iii set out the most fruitful directions for future research

multi buyer discount pricing abstract this article gives an exact optimal solution to the problem of finding the optimal discount price and price break quantity for a seller dealing with one buyer it also gives a method for solving the problem when one seller offers a single quantity discount schedule to many buyers the discount is of the all quantity type and the model of the cost structure was originally proposed by crowther

government research establishments state capacity and distribution of industry policy in britain heim c e 1988 government research establishments state capacity and distribution of industrial policy in britain reg studies 22 375 386 location decisions concerning government research establishments are examined to understand why defence and civil establishments were concentrated in the south in the late 1940s when regional policy to disperse economic activity was being actively promoted by the labour government world war two while increasing state capacity generally strengthened individual departments within central government with opposing views on regional policy thus having both positive and negative implications for pursuit of particular policies such as distribution of industry defence departments and the department of scientific and industrial research favouring southern locations generally prevailed over the board of trade the major exception the national mechanical engineering laboratory sent to scotland owed its location to political pressure more difficult to mobilize for oth

an incremental discount pricing schedule with multiple customers and single price break abstract this paper analyzes how a supplier can formulate the terms of a quantity discount pricing schedule assuming a single incremental discount system a model is developed from which an algorithm is derived for an optimal discount schedule the cases are investigated in which both the discount rate and the break point are unknown and either one is prescribed a numerical example is presented to illustrate the algorithm developed

improving the efficiency of the purchasing process using total cost of ownership information the case of heating electrodes at cockerill sambre s a improving the efficiency of the purchasing process provides important opportunities to increase a firm s profitability in this paper we introduce a mathematical programming model that uses total cost of ownership information to simultaneously select suppliers and determine order quantities over a multi period time horizon the total cost of ownership quantifies all costs associated with the purchasing process and is based on the activities and cost drivers determined by an activity based costing system our approach is motivated by the purchasing problem of heating electrodes at cockerill sambre a belgian multinational steel producer in this case quality issues account for more than 70 of the total cost of ownership making the quality of a supplier a critical success factor in the supplier selection process

extraction costs and the economics of nonrenewable resources the study questions the fundamental assumption of the standard aggregate exploration extraction model of nonrenewable resources that extraction costs and the level of reserves are inversely related it also raises questions about the model s conclusions regarding exploration incentives and the valuation of reserves an empirically tested disaggregate model is presented that suggests that exploration activity occurs from firms attempting to balance marginal extraction plus user costs at the intensive and extensive margins exploration is carried out until the marginal discovery cost of a deposit equals its present asset value and a u shaped price path is indicated

geology or economics testing models of irreversible investment using north sea oil data this paper tests the main implications of models of irreversible investment using data from operations in the oil fields in the north sea discrete time hazard regression models are used to ascertain the influence of economic variables the expected price of oil the variance of the price of oil and the level of reserves on the lag between the discovery of a field and the decision to develop the field we are able to control for heterogeneity in the data by incorporating variables which account for both the geological features of each field and individual operator characteristics the results indicate that the expected price of oil and the level of reserves are important in influencing the appraisal duration but that the variance of the oil price is not variables capturing the non economic features of the individual fields are also found to be significant factors affecting the appraisal lag copyright 1994 by royal economic society

a procurement decision support system in business volume discount environments emergence of a new discount pricing schedule called business volume discount becomes a major obstacle for procurement managers in finding the best purchasing strategy in the context of business volume discount a supplier offers discounts on total dollar amount of sales volume not on the quantity or variety of the products purchased from the supplier this paper describes a procurement decision support system pdss that has been successfully implemented to improve the purchasing activities of regional bell telephone companies in most purchasing operations a flexible procurement plan is considered a necessity because of the uncertainties associated with product demand and procurement budget pdss provides this flexibility by combining two different purchasing strategies purchasing on an annual commitment basis and on an as ordered basis although the development of the system is motivated by a particular application procurement of transmission plug in in one of the regional telephone companies the system is being used for a variety of procurement decisions involving business volume discount in the telecommunications industry the results of the implementation indicate that cost savings of up to 15 are achieved pdss use is not limited to the companies in the telecommunications industry the pdss model is applicable to any organization having a centralized procurement operation with business volume discount

regionalisation of science and innovation governance in japan kitagawa f 2007 the regionalization of science and innovation governance in japan regional studies 41 1099 1114 traditionally a country that has favoured the centralized national direction of industry science relationships japan is gradually transforming its innovation system with the regionalization of science and technology s t policies characterized by the promotion of clusters and academic entrepreneurship however there remain fundamental questions as to the development and actual potential of truly regional governance structures to guide science policy in target areas this paper examines developments in the governance of science and innovation in japan with a particular focus on the policy instruments used their impact on regional economic development organizational embeddedness in regions and the ability of regions to coordinate innovation support policies kitagawa f 2007 la regionalisation de la gouvernance de la science et de l innovation au japon regional studies 41

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance

a multicriteria model for assigning new orders to service suppliers abstract this paper describes a multicriteria model developed to support decisions on the assignment of new orders to service suppliers in this case contractors for the construction or renewal of pipeline networks for gas distribution the model comprises two phases i computation of a quota expressed as a percentage of total work orders budget for each supplier ii assignment of each particular order to a supplier selected on the basis of a multi attribute preference index evaluated for each candidate contractor the first phase is executed at the beginning of each year and then reviewed quarterly and the quotas are defined by a two criteria model the prices quoted by the supplier for standard works and the past performance of the constructor given by a performance appraisal system the paper describes the structuring phase of the model as well as the descriptors and corresponding partial value functions used in each stage to perform the evaluation within an additive aggregation framework